Foreign Direct Investment in India's Retail Sector

An exhaustive analysis of factors influencing the FDI debate 2009

An All India Retail Research Report


In 2006 the Government has promoted limited FDI in single-brand retailing and has considered opening up further in a phased system with emphasis on joint ventures with domestic players, evident with the highly controversial Wal-Mart joint venture with Bharti. Studying other countries such as China, where restrictions were initially imposed on the locations and formats in which foreign retailers could operate is also on the agenda of the Indian Government. The Indian media regularly discusses the issues of FDI in Retailing. The Hindu Business Line's opinion on the 'Great FDI in Indian Retail debate', is that “organized retail at present accounts for a mere 4% per cent of the total market (2008) as against 20% in China and 40 % in Thailand” and that “there is a growing demand for modern retailing formats that offer a clean and hygienic environment to shop in”. This has created significant debate for allowing FDI regulations to open up, although little has changed for multi-brand retailing restrictions to date. Knight Frank revealed in their Market Review (Q3 2006) that the move by the Indian Government to allow FDI in real estate had been an “opportune move” and although “multi-brand retailing is still not allowed, FDI in single-brand retailing has elicited heightened interest”.
2 1

1. 2. Knight Frank – 'Market Review' Quarter 3 2006


Contents Page

Abstract Contents Table of Figures & Charts Chapter 1 - Introduction 1.1 Rationale 1.2 1.3 Report Aims & Objectives Layout of Study

02 03 05 06 07 08 09 10-14

Chapter 2 – Study Methodology Chapter 3 – Historical Perspective on FDI 3.0 Overview 3.0.1 Post Independence & Pre-reform 3.0.2 Post-reform 3.0.3 FDI in Retail Chapter 4 – Policy Environment and Growth in Organized Retailing 4.1 Policy and Regulatory Environment 4.2 Growth in 'Organized’ Retailing Chapter 5 – Arguments for and against FDI in Retailing 5.1 Arguments for FDI in Retailing 5.2 Arguments against FDI in Retailing

15-17 17 18-20 21-22

23-28 29-34

35-42 43-50

Chapter 6 – Detailed analysis of factors and conditions attached to FDI 6.0 Survey Design & Sample 51-52 6.1 6.2 6.3 Questions (See Appendix II) Data Analysis Results & Findings 6.3.1 – 6.3.11 57-64 52 53-56


Chapter 7 - Conclusion 7.0 Introduction 7.1 Indian market place and Policy & Regulation 7.2 7.3 Arguments for and against Policy Change Market sentiment and exploration of domestic retailer's thoughts

65 65-66 67-68 69-70 71-73 74 75-77 78-79 80-82 83

7.4 Recommendations (7.4.1 – 7.4.17 inclusive) 7.5 Further Research Appendix I – Coding Key (open ended question interpretation) Appendix II – Survey Questions Reference List Bibliography


8. 6. 2. 10. 12. Figure 1 Figure 2 Figure 3 Figure 4 Chart S1 Chart S2 Chart S3 Chart S4 Chart S5 Chart S6 Chart S7 Chart S8 Chart S9 Chart S10 Chart S11 20 29 30 51 53 53 54 54 54 55 55 55 56 56 56 05 . 3. 11. 15. 5.Table of figures & charts 1. 4. 9. 13. 14. 7.

3. unorganized.Introduction India is without doubt a 'growth' economy and many consider it an attractive country to invest in.atkearney. Foreign Direct Investment (FDI) is restricted in the retail sector. 1 out of 30 of the top emerging markets. a thriving democracy along with bureaucratic inconveniences and serious infrastructure deficiencies. to protect the subcontinent's domestic retail sector and national interests? India is a very diverse country and it is important to fully understand its nature. could FDI in retail be a disaster for the sector and the Indian economy? What reforms are necessary. in their Annual Global Retail Index. There is cultural and religious diversity like nowhere else in the world. and despite many years of debate. 3 This division of the retail sector. Foreign Investors are watching India. restrictions and potential socioeconomic risks. but are their concerns unfounded? Equally. ranked India as No.pdf 06 .Chapter 1 . and has done for some years. if any. 2009 Global Retail Development Index. which has a very heavy weighting towards. is just one of the issues contributing to the sensitive debate on FDI in India at the moment. ready for a piece of the action in the retail market. AT Kearney (2009). What are the potential risks to the unorganized retail sector. the well-established international management consultancy. particularly in its rapidly growing and changing retail AT Kearney – http://www. the regulations are still only changing very slowly and there are still lots of uncertainties. However. and of course to the wider Indian economy? There are several groups who are strongly opposed to FDI in the Indian retail sector. but there are still plenty of uncertainties.

This research will provide recommendations for ways in which policy could be changed and improved to reduce the risks of FDI for India. Mukherjee A & Patel. and to assess the potential costs and benefits for the sector and India as a whole.1 Rationale From street/cart retailers working on widely debated and heated issue in India's economic and political environment. 5. and to benefit the domestic retailers and related industries as well as the economy as a whole. FDI in retailing remains a 4. colorful and highly fragmented. the Indian Government is paying increased attention to the country's retail environment. the Director & Chief Executive of the Indian Council for Research on International Economic Relations (ICRIER) acknowledged when referring to FDI in India's retail sector that “In spite of its importance. 'FDI in Retail Sector India'. We also wish to look at the issues which are Arvind Virmani (2005). there has not been any extensive research in this area. 2005. the retail market in India is vibrant. July 2009. 'Doing Business with India' Report. sector and the Indian economy? What reforms are necessary.” (KPMG 2009) 5 pavements/roadsides and small family run businesses to international brands such as Rolex and Nike. page 85 07 . to establish an understanding of the reasoning behind current policy and the controversial viewpoints that keep India divided on FDI Retail policy. the Government is gradually taking steps to open the sector. Academic Foundation in association with ICRIER.” 4 currently under discussion by the domestic players about FDI in India's retail sector. quoted from foreword by A Virmani KPMG. However. if any. “As retailing in India is attracting the attention of many global players. N. There is a desire to try to assist in facilitating the process of reform by providing a summary of the key issues and suggesting what regulatory reforms could be considered to help India resolve the issues that this report highlights. to protect the sub-continent's domestic retail sector and national interests? It is this lack of independent research that specifically focuses on the retail sector that has inspired us to undertake this study so as to provide a balanced and independent review of current opinions/thoughts on FDI in Retail policy.1.

2 Report Aims & Objectives The aim of this report is to provide an analysis of the arguments for and against FDI in India's retail sector. in order to provide recommendations on reforms to government policy that could reduce the risks of lifting restrictions on FDI in retail. . as well as an overview of the Indian system. This will be followed by an examination of the arguments both for and against changing current policy and improving the regulatory environment. via a survey. It will then be possible to consider what solutions could potentially resolve the issues and are supported by the majority of domestic retail players. The report's objectives are to investigate the Indian market place and review current policy and regulations with regards to foreign investors so as to gain an understanding of the current position on FDI. and to explore thoughts on the issues faced by the sector.1. The next objective will then be to compare the thoughts and opinions of people working within or alongside India's domestic retail sector. This will enable us to assess the key factors to be considered in making policy changes in the future. to interpret the domestic market sentiment towards foreign investment.

It will set out the aims and objectives of the report and give an outline of what the report will involve.2 Layout of Report Chapter 1 will present the problem and reason behind the study (rationale). Chapter 2 will detail the approach and methods of research used to collect data for the survey. Chapter 7 will present conclusions and recommendations based on the overall findings of the study. Chapter 6 will analyze the factors influencing FDI to a greater level of detail with the aid of a survey conducted amongst the domestic retail and allied industries in India. Chapter 5 will present arguments from both sides – those who are for and those who are against FDI in retail in India. Chapter 3 will provide a historical perspective starting with an overview of FDI in India. The survey results will be analyzed and interpreted. Chapter 4 will explain the current policy framework with respect to FDI in India and chart the growth of organized retailing in India. It will also look at data sources and the limitations of the research & data.1. with the findings presented. 09 .

using primary as well as secondary methods. with a view to encouraging 'socially responsible investment'. The investigation will allow us to form a reasoned opinion as to what government policy changes are required to make the opening up of FDI in retail as successful as possible for the domestic market and India's economy. 1. to assess and make recommendations of changes to current policy.Study Methodology 2. and to consider the risks to India's economy. There will be a certain amount of quantitative analysis undertaken with the data received from the proposed research survey. and to provide some initial focus. How can policy help to reduce the risk of FDI in retail for India and its domestic markets? originally designed to help construct aims and objectives. What are the key issues concerning FDI policy change in India's retail sector? 3. and the unorganized retail sector. 10 . so as to offer more depth to the respondents' opinions. three questions were This study will be based predominantly on qualitative research techniques. in order to allow for an in-depth and insightful exploration of current issues surrounding FDI in India's Retail market. which should help to achieve the aim and objectives set out in Chapter 1. To initiate this study. but this will be interpreted alongside 'qualitative' open-ended questions too. What methods of FDI in retail are currently permitted and what is the policy? 2. The three questions were: The report hopes to establish if there is a genuine argument for government policy to change in favor of FDI in retail.Chapter 2 .0 Study Approach This particular study on FDI in India's retail sector will utilize an inductive approach to the research. society. and to assist in gaining an understanding of the 'sentiment' in India towards foreign retailers and their potential impact on the retail sector and wider economy.

1 Types of Research Primary research in the form of an internetbased survey was used to collect data of a qualitative open-ended nature. although it is by no means abundant in the specific area of Retail. as well as ask what changes to policy and the sector they believe are necessary and why. to academic and businessorientated literature as well and as the newspapers/online media internet resources will be reviewed and each source was considered for its reliability. It is important with a review such as this to ensure that the sources of information are reliable and trustworthy as possible.1.2 Literature Review There is a reasonable amount of literature available on FDI in India. Current policy is in a state of flux.1. 11 .2. It will enable accurate and relevant questions to be formulated for the proposed survey questionnaire and provide a good background understanding of the likely causes of any patterns and trends that may be revealed by the survey. A broad range of opinions from institutional and corporate material. Secondary research was carried out in the form of a literature review. and potential to misconstrue the truth. using a descriptive approach so that the report can analyze and interpret the Indian domestic retail market's sentiment towards FDI and how many people are in favor of various aspects. to compare and contrast material and interpret the issues with a view to drawing conclusions and developing recommendations.1 Study Techniques 2. 2. hence a review of literature on the latest policy proposals and arguments for and against changing policy will be the back-bone of this study. The survey also includes quantitative 'closedended' questions for gathering data that can be analyzed and interpreted alongside the followup open-ended questions.

1. or through incorrect interpretation of sentiment in a participant's responses by the researcher. due to the open-ended questions and subjective nature. This can be minimized by ensuring that the questions are pre-planned well to ensure they gather the correct information that will help to answer the questions underlying this research. and that are clear and concise to 12 . By ensuring the questions are directly related to the objectives of this research will increase the quality of the results achieved and help to justify the use of this research technique. if participants are unwilling to give honest opinions on their views of particular subjects.2.1 Study Techniques 2. The structure should be so that bias is minimized with questions that do not lean towards encouraging a particular response from the participant. Coding will be required for analysis and interpretation of the open-ended questions. for example. It may also suffer complications with data inaccuracy. inherently have issues of 'interpretation' of results. please see Chapter 4. NB: For further information on the survey sample and design.3 Survey Questionnaire Qualitative survey questionnaires will take in to account possible language skill differences/difficulties in participants.

finmin.2.2. Website such as the Government of India's Ministry of Finance www.2.2. Center for Policy One particular notable internet resource was the Alternatives (www.2. and also provides press releases and data and statistics have been useful. The available text on general FDI were useful background research though.2. and the more specific texts such as 'FDI in Retail Sector India' by Arpita Mukherjee & Nitisha Patel and 'Multinationals in India' by Amar Nayak were utilized to a greater extent as this report considered them to be far more relevant to the debate on this research topic. .2.2 Secondary Data Sources 2.1 Internet Searching the internet extensively the starting point of this research and provided some valuable secondary data. The report also references some small domestic industry group's website which have provided particularly informative reports on some of the key issues with FDI in Indian Retail.nic. and India FDI Watch's report in association with the Association of Community Organizations for Reform Now (ACORN). The final survey was then sent out to a significant sample of Indian retailers and others in retail-related industries. We designed a test survey to be emailed to a pre-selected 'test-sample'. however there is less on FDI in India. 2. for example the India Brand Equity Foundation (IBEF) report on India's Retail Market & 13 Opportunities.1 Primary Data Sources The primary data sources in this research were collected via an emailed survey questionnaire (see Appendix II).in which provides information on current FDI policy through the Foreign Investment Promotion Board (FIPB). All of these helped to provide a wide and balanced understanding of the key issues of this research. and other trade lobby sites.2. and limited amounts that are specifically focused on the retail sector.2 Data Sources 2. 2.2 Academic Textbooks There is a vast amount of literature on FDI in general.2.3 News Articles and Industry Reports To obtain up to date information and opinions on the research topic it was necessary to refer to domestic and international news articles and gather a variety of industry reports and papers. 2.

3. 2.2 Inconsistency of Data & Statistics available on India and FDI/ Retail We noted that data available.3 Limitations of Research Study 2. Up-to-date data was also hard to source. it was inevitable that this would have limitations on survey response. for the purposes of this research being more of an exploratory nature. this did not have too much impact on the findings. was often inconsistent. particularly in relation to India's retail sector.3. Survey responses were also potentially limited by the length of the survey and by language barriers.1 Survey Response Limitations Due to the nature of the survey being internet/online-based. 14 . However.2. however this was counterbalanced by using a very large sample base.

paan/beedi shops. in small or individual lots 8 6 Retailing in India is slightly different than in developed markets. August 2003. for example. CPAS (2005) 15 . FDI in India's Retail Sector. Foreign Direct Investment can be defined as the “Acquisition or construction of physical capital by a firm from one (source) country in another (host) country. let us briefly define 'Foreign Direct Investment'.”7 6. Mohan Guruswamy et al.” Before beginning however. as they are the key focus of the entire study. such as a department store or kiosk.wikipedia. Lonely Planet Publishing Pty Ltd. 9. and it therefore seems logical to start in reasonably recent times. India truly does embrace diversity with a passion like very few places in the world. 'India'. hand carts and pavement vendors. Organized retail could be described as when trading is taking place under a License or through people that are registered for sales tax or income tax. Retailing can normally be defined as “the sale of goods or merchandise from a fixed location.” 9 for direct consumption by the purchaser. Unorganized retail is India's more traditional style of “low-cost retailing. This study is focused on the retail sector and the 'current' Foreign Direct Investment (FDI) position in India. Centre for Policy Alternatives. 8.Historical Perspective on FDI 3.html http://en. convenience stores.0 Overview It has been said that India has “one foot grounded in time-honoured traditions and the other fervently striding into the entrepreneurial e-age”.Chapter 3 .edu/~alandear/glossary/f. and 'Retailing'. 10th Edition.umich. the local kirana shops. in that it is divided in to organized and unorganized retail. owner-manned general stores. page 32 http://www-personal. Lonely Planet. or by post.

Sathyaraj (2006) . saying “The major difference between organized and unorganized retailing lies in its number (chain) of store operations. The supply chain and sourcing are also done locally to meet local needs. An unorganized outlet may be just stand alone or can have [a] maximum of 2-3 outlets in a city.”11 India is a democratic Union of States and the Government operates through a parliamentary system. The negotiations include those on agriculture and services.wto. to try to sort out the trade problems they face with each other”12 They are currently actively participating in the Doha Round which “provides the mandate for negotiations on a range of subjects and other work.html Radhika (2006) . where as the organized outlets are "any retail chain (more than two outlets) which is professionally managed (even if its family run). India has also been a member of the World Trade Organization (WTO) since has an accounting transparency… and organized Supply Chain Management with centralized quality control and sourcing (certain parts can be locally made) can be termed as an "organized retailing" in India. 13.wto.http://retail-industry. 11. 12.0 Overview Sathyaraj (2006) defines unorganised retailing more specifically as “an outlet run locally by the owner or caretaker of a shop that lacks technical and accounting standardization.http://www.htm World Trade Organisation .blogspot. The World Trade Organization is a place “where member governments go.blogspot.htm 16 .”10 Radhika (2006) goes on to be more explicit about the differences.”13 10. which began in early 2000.htm World Trade Organisation .

Things began to get out of hand and the government went to foreign lenders pledging gold held at the Reserve Bank of India (India's central bank) for short term loans so as to help get through the financial crisis. In 1990-91 the current account deficit was Census of India . Aaron. India was in the middle of economic agony after many years of over-zealous government control over 17 14. John Wiley & Sons pte. The large working-age population will no doubt translate to an attractive consumer base compared to other economies of the world. The crisis brought around something totally unexpected. 15. and is the second most populated country at 1. Wikipedia . page 7 17 . isolation and poorly managed fiscal policy.3. and its foreign exchange reserves were so low that India only had enough dollars for two weeks' worth of imports. John Wiley & Sons pte. Aaron. 14 estimated to make up the working age group (15-60). which did not have the intended consequence of stimulating investment and eventually pushed the balance of payments out of gear. Ltd 2006. Export growth had turned negative and for the first time Indian industrial production recorded negative growth.aspx Chaze.1% and inflation was 12%. The political problems that this position caused were immense and it was only the recognition of the fiscal problems that finally persuaded the politicians and bureaucrats to release their hold on the economy.0 Overview India is the most populous democracy in the world. page 22 Post Independence & Pre-Reform There were “half-hearted attempts made by the Rajiv Gandhi government in the mid-1980s to selectively open the economy to foreign trade and relax import restrictions.http://www. Ltd 2006.172 billion the Indian government was about to default on its foreign currency loans. 17. 16. where regulation in some of the key sectors of the economy was to be enforced independent of the government. By half way through 1991. it brought around change from a completely uncompromising centralized system of control to a market-orientated system. An Investor's Guide to the Next Economic Superpower.15 It has a largely young population with 35% of India's population being under 14 years of age and more than 60 per cent of the population is 3.0. In 1990.http://en.censusindia. Foreign finance had all but closed the door on India. based on United Nation statistics as at 1st July 2009. An Investor's Guide to the Next Economic Superpower. just as China was beginning to become a popular place for investors. “ 16 economic activity. placing India as one of the main targets of the global retail players.

and to reform and modernize the financial sector so that it can more efficiently serve the needs of the economy” (Cited by Datt and Sundharam.” The government of the time.7% per annum in the first five years of the reform period. “there is no doubt that given the low per capita income the need for an accelerated growth rate becomes urgent. 'India in a Globalized World'. a study of the economic reforms and liberalisation of the Indian economy by Kalirajan and Sankar (2003) acknowledges this but highlights that whilst this economic growth is encouraging. but gradually came down to less than 5% in the last few years”. revealed a new 'industrial policy' and the Finance Minister when sending a memorandum dated 27th August 1991 to the International Monetary Fund (IMF). prices & availability across the economy became competitive rather than monopolistic.0. The inflation rate was on average at a high of 10. John Wiley & Sons pte. 20. 'Economic Reform and the Liberalization of the Indian Economy'. MPG Books Ltd. page 111 Kaliappa Kalirajan and Ulaganathan Sankar. said “The thrust will be to increase the efficiency and international competitiveness of industrial production and to utilize foreign investment and technology to a much greater degree than in the past. 'An Investor's Guide to the Next Economic Superpower'. entrepreneurship and the 18 successive government has supported the reform process and tried to hasten things. each 18. The post-reform performance of the economy had been good.2 Post-Reform Economic reform was now on the agenda after the financial disaster of 1991. 2001:231) 19 Between 1991 and 1999 as India moved away from a state controlled economy and slowly developed into a liberalized economy. page 11 Sagarika Dutt. Due to the ever decreasing role of the government in the economy. However. 2006. Manchester University Press. Congress (led by Narasimha Rao). which placed India among the best-performing countries in the world. and as a result. page 40 18 . Ltd 2006.0 Overview 3.3. and these reforms “brought in three elements that India was never previously allowed to have: competition. Aaron. Chase. 2003. to improve the performance and rationalize the scope of the public sector. resource allocation began to be influenced by the markets. and between 1994 and1997 Gross Domestic Product (GDP) grew in real terms by over 7%. 20 beginnings of world-class infrastructure. 19.

The Breathtaking Development and Influence of Modern India'. MPG Books Ltd. 7%) were in formal. 21 a year. page 4 Farndon. India had a workforce of 470 million. 24 21. shortage of invertible funds. Kalirajan and Sankar (2003) argue that “low overall productivity of investment. 22.” 23 Farndon (2007) discusses how the development of the Indian economy has been quite unconventional. John. To explain. and as this continues to grow. Finally. the emergence He highlights a 'normal' of cheap the & low-cost which pattern of economic development starting with manufacturing to provide a broad base of employment for masses. Virgin Books Ltd.2 Post-Reform The Indian National Congress with the support of the United Progressive Alliance have been in government since 2004 and were re-elected for a further term in May 2009. income tax paying positions – and of this 35 million. page 18 19 . Farndon (2007) highlights the issue of job insecurity in India. excessive fragmentation of markets. “Between 1991 and 2004. page 15-16 Farndon. page 41 Kaliappa Kalirajan and Ulaganathan Sankar. The Breathtaking Development and Influence of Modern India'. In 2005 and 2006 growth accelerated to over 8% and in 2007 it looked like it might be well over 9%. All the rest – some 435 million people – work in what Indians call the 'unorganized sector'”. “a country with a The liberalizations subsequently introduced by the Finance Minister (Manmohan Singh) have clearly been successful. John. Virgin Books Ltd. subsequently encourages urbanization. he uses the example that in 2006. 23. and how few people are employed in a recognized position. MPG Books Ltd. and the poor infrastructure may pose significant problems to sustained higher economic growth… there is reason to believe that growth impulses from the first generation of reforms may have ebbed”.3. 'Economic Reform and the Liberalisation of the Indian Economy'. 2007. it was stressed that there was a need to debate and make decisions in relation to the next wave of reforms to be put in place to ensure India's economic strength and to make it “fully capable of competing successfully in the evolving world order”.0 Overview 3. 2007. Although a more liberal approach to foreign investment in India has emerged in recent times. 2003. 'Economic Reform and the Liberalisation of the Indian Economy'. 24. India's economy grew by an average of 6% population of over a billion has hardly more income tax payers than the UK. 'India Booms. Essentially. but only 35 million of these (approx. 'India Booms. (cited by Kalirajan and Sankar 2003) 22 tech industries start to emerge. 2003. he notes a shift whereby higher value products that are more sophisticated emerge. service and high The Indian government has clearly recognized this. the majority (21 million) are employed by the government. and in the Finance Minister's Budget Speech for 1999-2000. Kaliappa Kalirajan and Ulaganathan Sankar.0.

'India Economics'.8 24.e.7 -0.0 -8. A milestone was passed in 2003 when the software sector alone earned more money than the entire cost of the country's oil imports – the factor that had brought the country to its financial knees in 1991.4 7.6 7.4 -4.9% per annum real growth. GDP growth has been very healthy average at 8. India was able to ride out the difficulties almost with equanimity” Economic Indicators between 2003 and 2008.5 -4.3 30. but this is consistent with the global financial crisis that has been playing out during this research i.9 4. EDC Economics. There is no doubt that India's success in the IT world has transformed the country.9 6. and forecasts for 2009-10 are as below Figure 1 ECONOMIC INDICATORS. May 2009.1 -3.9 5.edc.5 4.9 16.8 10.0 It is evident that 2009 is going to be a bad year in terms of Imports/Export Growth and GDP for India.6 2010 (forecast) Peter Whelan.0 20. page 1 . 25. This meant that when the invasion of Iraq pushed oil prices up again.4 8. Looking at the data going back to 2003-07 however.2 Post-Reform “India… has shot straight into the third stage.8 8.2 -6.9 -3.INDIA 2003-2010 03-07 Average Real GDP (% Growth) Inflation (% year-end) Fiscal Balance (% of GDP) Exports (% Growth) Imports (% Growth) Current Account (% GDP) Reserves (mth of imports) External Debt (% GDP) Source: EDC Economics25 2008 7.0 2009 (forecast) 4.http://www.pdf 20 . It does have a range of manufacturing industries.7 14.0 7.3. 2008-09.1 33.0 -8. with an economic boom that has relied almost entirely on high-tech and service industries. and despite a rise in inflation in 2008.0 Overview 3.6 12. this is now beginning to settle and is forecast to drop further.0.6 14.3 9.1 -3.5 13. but they are remarkably small for a country of India's size and prosperity.

hindubusinessline. where restrictions were initially imposed on the locations and formats in which foreign retailers could operate is also on the agenda of the Indian Government. The Indian media regularly discusses the issues of FDI in Retailing. is that “organised retail as present accounts for a mere 2% per cent of the total market (2005) as against 20% in China and 40 % in Thailand” and that “there is a growing demand for modern retailing formats that offer a clean and hygienic environment to shop in”. guidelines.0. Studying other countries such as China. 27. although little has changed for multi-brand retailing restrictions to date. NRIs (non-resident Indians) and other forms of foreign investors. is chaired by the Secretary Industry (Department of Industrial Policy & Promotion or DIPP) within the office of the Prime Minister. and procedures for investment promotion and approval. FDI in singlebrand retailing has elicited heightened interest”. 27 government is now starting to take a closer look at liberalising its foreign investment policies. In 2006 the Government has promoted limited FDI in single-brand retailing and has considered opening up further in a phased system with emphasis on joint ventures with domestic Its key objectives are to promote FDI in India with investment promotion activities both domestically and internationally by facilitating investment in the country via international companies. The Hindu Business Line's opinion on the 'Great FDI in Indian Retail debate'.3. The 'Foreign Investment Promotion Board' (FIPB) as it is known. This has created significant debate for allowing FDI regulations to open up. The FIPB should review policy and puts appropriate institutional arrangements in place with transparent rules.3 FDI in Retail 60+ years after independence India's Knight Frank revealed in their Market Review (Q3 2006) that the move by the Indian Government to allow FDI in real estate had been an “opportune move” and although “multibrand retailing is still not allowed.0 Overview 3. evident with the highly controversial Wal-Mart joint venture with Bharti. 26. 26 The government has created a specific Board to deal with promotion of FDI in India and to be the sole agency to handle matters related to FDI.htm Knight Frank – 'Market Review' Quarter 3 2006 21 . http://www.

This has made retail a major political issue as there is pressure on the government to compensate the people who are displaced and provide alternative employment options.0. employs a huge number of people in the 'unorganised' sector. ensuring that the cases that are pending are dealt with quickly.0 Overview 3. FDI proposals deposited with the board's secretariat should be put in front of the Board within 15 days. The Administrative Ministries must also make any comments either before and/or in the FIPB meeting.3 FDI in Retail The FIPB should meet every week. 28. Retail particularly regarding the potential risk of displacing labour in the retail sector.3. The overall aim is to provide a “transparent effective and investor friendly single window providing clearance for investment proposals. India certainly has some 'political debates'.”28 When looking specifically at FDI in retail. It is there to ensure that the investors applying with FDI proposals receive a response on the Government's decision within six weeks. http://finance.html 22 .com/investment_in_india/fipb. the majority of which does not have any skills.indiamart.

The Investment Commission (2009) believes the Foreign Investment regime in India as “one of the most transparent and liberal… among Currently. The automatic route is appropriate in any sector where there is no 'sector cap' i. for example <26% of an Insurance company. the business plan. Differential treatment is limited to a few entry rules. sectors where 100% foreign ownership is allowed and some other specified sectors. and filing of the investment details to the Reserve Bank of India (RBI) post-facto is literally for data records only. Automatic Approval route requires no prior approval. providing the proposed details of investment.htm 23 . an application must be made to either the FIPB or the Secretariat for Industrial Assistance (SIA) depending on which Approval route is being used.http://www. They make recommendations on policy and procedure to the Government and recommend projects that should be fast tracked through the approval process. KPMG. A declaration is also required to confirm whether the applicant has previous collaborations or trade mark agreements in India in the same sector/field to which the application relates (KPMG 2008)30 emerging and developing countries. 30.”29 Foreign investment can be approved via one of two different routes: a.1 Policy and Regulatory Environment Alongside the Foreign Investment Promotion Board (FIPB) previously mentioned. predominantly in some Services sectors. sectors requiring an industrial (Source: Investment Commission Website) 31 29.htm Investing in India.investmentcommission.Policy Environment and Growth of Organized Retail b. there is also the Investment Commission which was established in December 2004 as part of the Ministry of Finance so as to facilitate and enhance investment in India. http://www. or where it is mandatory for the application to be approved by the FIPB (for example. 31. financial and foreign company They also assist in promoting India as an investment page 32 .Chapter 4 .investmentcommission. etc.e. or where the activity is one where FDI is currently not allowed. FIPB Approval route is for proposals where the shareholding is intended to be above a prescribed 'sector cap'.pdf http://www.

in 24 . retailing of multiple brands. Foreign investments are freely repatriable. with prior Government approval for retail trade in 'Single Brand' products with the objective of attracting investment. However. This implies that foreign companies can now sell goods sold globally under a single brand. 2007. and are regulated under the Foreign Exchange Management Act (1999) (FEMA). FDI up to 51 per cent is allowed. 'Retail Markets & Opportunities'. thereby attracting significant foreign investments. Subject to these equity conditions. Page 11 (www. foreign investment is currently limited to 51% in single brand retail stores and 100% FDI in wholesale cash and carry. A report by Ernst & Young for IBEF. is presently not allowed. Relaxation of FDI restrictions are being vigorously pursued by the business and trade coalitions and are expected to fall in place over the next 3-5 years. a foreign investor can set up a registered company and operate under the same rules and regulations as an Indian company. administered by the Reserve Bank of India's Exchange Control Department. No multi-brand retailing is allowed. IBEF India. Nokia and Adidas. instead of having to seek Foreign Investment Promotion Board (“FIPB”) approval.ibef. Ernst & Young (2007) in their report on behalf of the India Brand Equity Foundation said: “The Government is progressively undertaking reforms and liberalising the retail sector. technology and global best practices and catering to the demand for such branded goods in India. even if the goods are produced by the same manufacturer. The regulatory and supervisory policies are being reshaped and reoriented to meet the new challenges and opportunities in this sector.1 Policy and Regulatory Environment In terms of the Retail sector. FDI up to 100 per cent is allowed under the automatic route for cash and carry wholesale trading and export trading. To facilitate easier flow of Foreign Direct Investments (“FDI”) inflow.4.”32 32. such as in the case of Reebok.

e. A report by Ernst & Young for IBEF. so this is clearly going to cause confusion. It is however questionable whether there is anything to stop a Joint Venture forming under a wholesale cash and carry operation. John Elliott (July 2009). Those of particular interest to this research are:Press Note 2 . Page 11 (www. and then setting up sub-companies in. IBEF India. for example multi-brand retailing. yet were supposed to come in to effect from the date of announcement.”34 The government in a number of statements has said that areas such as multi-brand retailing (i. though official limits are exceeded overall. FDI limits here are bypassed by progressively adding foreign investment through tiers of subsidiary joint ventures so that. 2007. Press Note 2 (2009) introduces the concept of “ownership and control”33 for the first time.'Guidelines for transfer of ownership or control of Indian companies in sectors with caps from resident Indian citizens to non-resident entities.ibef. where FDI is totally banned) will not be affected by these Press Note changes.'Guidelines for calculation of total foreign investment’ Press Note 3 . but present this as an Indian owned and controlled business. the rules are not technically 25 .1 Policy and Regulatory Environment In February 2009. The Press Notes do not appear to have instigated amendments to the Foreign Exchange Management Act (FEMA). South Asia correspondent for the Financial Times comments that “this legitimises cascading investments which have been used to bring foreign capital into sectors such as telecoms that need heavy investment. Press Note 4 – ‘Clarificatory guidelines on downstream investment by Indian Companies'. the Department of Industry Policy & Promotion (DIPP) released a series of Press Notes on changes relating to foreign investment.4. 'Retail Markets & Opportunities'. It allows foreign-invested Indian companies to create and invest in downstream companies or associated businesses without the original investment being counted. 32.

the governing Act overseeing foreign exchange is the Foreign Exchange Management Act (1999). An example is the Payment of Gratuity Act (1972) which provides for “gratuity inter alia to employees in factories.html 34.ft. 2 (2009 series).pdf Elliott. 'Guidelines for calculation of total foreign investment'. shops. Consideration also needs to be given to other policies and regulations that may affect FDI inflows in to India. page 3 . Cash and carry is a particularly attractive option for foreign investors as complete ownership (100%) is allowed in this format.http://siadipp. Ministry of Commerce & Industry.nic.4.”35 Cash and carry is a particularly attractive option for foreign investors as complete ownership (100%) is allowed in this 33. death or total disablement due to accident or disease. 2008. there are a number of market entry methods available for retailers under current FDI policy. 9th July 2009 – http://www. plantations. establishments. retirement. and mines in the event of superannuation. Investing in India. for which the most common methods are:· · · · · · Strategic License Agreements (agreement with domestic player) Cash & Carry Wholesale trading (100% ownership) Joint Ventures Franchising Distribution Manufacturing On a more general note of regulation. page 32 . 26 . Several global players including Wal-Mart and Metro have entered the Indian market through this method. Department of Industrial Policy & Promotion. 35.1 Policy and Regulatory Environment As it stands today. for example labour or company resignation. Several global players including Wal-Mart and Metro have entered the Indian market through this The objective of this Act is to amend and consolidate the laws in relation to foreign exchange. Press Note No. February 2009. John 'India's shaky FDI rules need clarification'.

http://www. as per below: · · · · · · · · · · · Payment of Bonus Act 1965 Minimum Wages Act 1948 Shops & Establishment Act Contract Labour (Regulation and Abolition) Act 1970 Industrial Disputes Act 1947 Workman's Compensation Act Profession Tax Maternity Benefit Act 1961 Employees Provident Fund and Miscellaneous Provisions Act 1952 The Employees State Insurance Act 1948 Goods & Services Tax (GST) (Proposed for July 2010) state governments. 37. The Government is releasing large tracts of unused land for retail development in the Mumbai and National Capital Regions (NCRs).1 Policy and Regulatory Environment KPMG (2008)36 highlight just some of the key legislation that could have a potential impact on foreign investors setting up in India.” 36. with the Governments benefiting from the access to impressive revenues from land sales and tax collection from retail developments. are being pursued by the Government. A report by Ernst & Young for IBEF. page 79 . This is soon to be followed by other of Government controlled land etc. Solutions to problems related to the lease rentals and protenancy laws. allotment 37 The India Brand Equity Foundation (IBEF) in 2007 has also said that “The Government is expected to take a calibrated approach in land and rent reforms to improve the real estate regulatory environment and facilitate easy access to retail space for international 27 . with initiatives like Special Economic Zones (SEZs). 2008. Retail Markets & Opportunities.pdf IBEF ! which significantly deter international investors. Page 12 ( Investing in India. KPMG.

4.1 Policy and Regulatory Environment
To provide confidence to investors and show commitment to a SEZ policy regime that is stable and focused on increasing economic activity and employment through the setting up of SEZs, a comprehensive draft SEZ Bill was prepared after extensive debate with stakeholders. The Special Economic Zones Act, 2005, was passed by Parliament in May 2005 and came into effect on the 10th February 2006, providing for a more streamline and simplified set of procedures and for 'one-stop' clearance on matters relating to central as well as state governments. The main objectives of the SEZ Act are: · generation of additional economic activity · promotion of exports of goods and services · promotion of investment from domestic & foreign sources · creation of employment opportunities development of infrastructure facilities The current policy is trying to encourage Joint Ventures in multi-brand retailing so as to boost the domestic retailer's growth in this area. However, there is also the risk that some foreign retailers will not be interested in investing unless they have 100% ownership and that the current policy will prevent them from choosing India as an FDI in Retail destination. In reality, this may present itself as 'back-door' multi-brand retailing through the use of the aforementioned 'cascading' sub-companies of Joint Ventures. Despite the current policy and regulatory environment not being 'perfect' for foreign investors, there are clearly moves towards improving the current position and facilitating FDI inflows without having a detrimental impact on various sectors of the economy.


4.2 Growth in 'Organized’ Retailing
Chaze (2006) looked at 'unorganized and organized’ sectors in India, in the context of retailing. He spoke of how the organized retailing sector was beginning to grow rapidly.

He states that “organized retailing (versus the traditional Indian fare of stand-alone retail or department stores) has to be one of the most exciting growth industries in India today, with branded stores and malls thus far covering a miniscule 2% of the total market.”

The Figure below shows how significant retail is to the Indian economy, contributing 39% of GDP, and yet organized retailing is still in an under-developed early stage at only 6% of total market (2005) when compared to other countries. It is clear from this data that India has a significantly lower percentage of organized retailing compared to other developing markets such as China with 20% of organized retail penetration, and Brazil with 75%. When compared to their respective retail sector contributions to GDP, India is higher at 39% than China and Brazil.

Retail is a significant contributor to india’s GDP; however organized retail plays only a small role in that
Although retail is a significant contributor to India’s Economy ... Retail % Contribution to GDP (Yr 2005) 55 39 32 22 23 17 32 22 ... organized retailing is still at a very nascent stage in India Organized Retail Penetration (%)

85 75

20 6



South Africa

Vietnam China




South Africa

Vietnam China


Source: Confederation of Indian Industry & AT Kearney Report (2006)

38. 39.

Chaze, Aaron, India, An Investor's Guide to the Next Economic Superpower, John Wiley & Sons (Asia) Pte Ltd, 2006, page 23 CII / AT Kearney, Retail In India: Getting Organized to Drive Growth', November 2006, page 5


4.2 Growth in 'Organized’ Retailing
Vietnam on the other hand is the only country in this figure with a higher GDP contribution at 55% (compared to India at 39%) as well as having a higher percentage of organized retail penetration at 22% (compared to 6% in India). Food and Beverages vertical constitutes the largest percentage share of the revenue at 74.41%, and yet only has 'organized' penetration of 0.98%, so is likely to be a target sector for foreign retailers. Figure 3 below shows the revenue and share of verticals, as well as the penetration of organized retail: Figure 3


Value (US$ millions)

Share of Total Revenue (%)

Organised Retail Penetration (%) 0.98 16.39 17.04 8.76 6.19 3.56 32.84 13.08

Food & Beverages Clothing & Textile Consumer Durables Home Décor Jewellery & Watches Beauty Care Footwear Books, Music & Gifts
Source: IBEF India

231,951 29,024 15,171 9,463 13,390 6,854 3,268 2,610

74.41 9.31 4.87 3.04 4.30 2.20 1.05 0.84

The Indian consumer behavior of preferring proximity to retail formats is also particularly pronounced in the food & beverages sector, with food, grocery and allied products largely sourced from the local stores or hand cart vendors very close to home.


IBEF India, Retail Markets & Opportunities, A report by Ernst & Young for IBEF, 2007, Page 75-76 (


4.2 Growth in 'Organized’ Retailing
Ernst & Young (2007) have said that “prevalence of traditional retailing is highly pronounced in small towns and cities with primary presence of neighborhood 'kirana' stores, push-cart vendors, 'melas' and 'mandis'. Organized formats are only in the initial stages of adoption in these regions. Leading retail players in the industry are beginning to explore these markets and the rural consumers are slowly beginning to embrace the newer organized retail formats. “ With such a high level of unorganized retail employment in the country, it is understandable that the rapid growth of organized retailing naturally causes some concern for smaller industry and traditional retailers. It does however seem inevitable that organized retail will continue to see strong growth in India as rural (and urban) consumers begin to accept and adapt to new and modern retailing formats.

“Modern/Organised retailing is growing at an aggressive pace in urban India, fueled by bourgeoning economic activity. Organized retail revenues are expected to increase from an estimated US$ 12.9 billion per annum in 200506 to more than US$ 43 billion by 2009-10. The sector is predicted to grow by 400 per cent, in value terms, by 2007-08. A large number of domestic and international players are setting up base and expanding their business with newer organized retail formats and intense competition driving innovation in formats.”

Reliance Industries Limited (RIL), one of the largest domestic organized retailers in India, has set up a subsidiary of RIL called Reliance Retail Limited (RRL) to drive forward the groups growth in the organized retail sector, with its 'vision' to “generate inclusive growth and prosperity for farmers, vendor partners, small shopkeepers and consumers.”43

42. 43.

IBEF India, Retail Markets & Opportunities, A report by Ernst & Young for IBEF, 2007, Page 5 ( RIL Online


RIL Online http://www. RRL point out that presently. RRL will continue to seek opportunities 45 with international players as well. 45. page 2. June 2006. experiencing rapid income growth so consumers have a greater ability to spend. the organized retail sector in India is going to grow rapidly.html Pankaj Gupta. speciality and wholesale stores. In Tata Strategic Management. although by 2011. approximately $300 billion. The Next Growth Frontier.tsmg.2 Growth in 'Organized’ Retailing According to RRL (2009)44.html http://www. established key joint ventures with international partners in apparel both the willingness and attitude to spend. save later' i. 46. synergistic optical and office product other businesses. for and a desire for convenience. India also has a growing 'young' population which has Allowing FDI 100% in retailing would no doubt significantly accelerate this Reliance in recognising that “strategic alliances are going to be a key driver to its retail business. and this is going to have some effect on the traditional unorganized retailers. RRL have begun an implementation plan to create a high spec state of the art retail in financial year 2007-08.4.pdf) 32 .” It seems fairly safe to assume that even without FDI. 44. India is. 27% of global GDP is attributed to retail. Pankaj Gupta (2006)46 highlights several demographic trends that are factors in the growth of organized retailing. hypermarket. this is likely to grow to 10% Therefore. Further. to include a strategy for opening multi-format stores such as convenience. and in various developing markets organized retail contributes typically anywhere between 20% and 55% of GDP. Organised Retail in India. (clothing). organized retailing is only approximately 5%.e. with a growth rate of 13% per year. consumers are prepared to borrow money for today's consumption. There is growing urbanization and this urban population has both a higher propensity to spend. Gupta also states that there is a trend for Indian consumers tending to 'buy now. (http://www. Placing the Indian retail market at The growth of consumerism in India is one of the key drivers fuelling the organised retail growth.

so they buy the cheapest goods.55am. and availability of organized financing and establishment of insurance norms. 49. recorded discussion . they weigh the price against what they get for it. 48. they buy the best without looking at the price.Judge Business School University of Cambridge. climbers.dare. 23 http://www. In a note by the Ministries of Commerce & Industry and Consumer Affairs.dare. 9. as supporting a proposal to give the retail sector formal 'industry status'.4. but find that their desires far outrun their 47. The third group. Kattuman. fans and radios – and learn to aspire for more. whom she calls the consuming class… is of inveterate buyers. aspirants.” 47 Sajjan Jindal said that “providing industry status is the first basic step needed for reforming the Indian retailing sector. 50. fiscal incentives.dare. The top fifth are the The legislation should provide broad parameters within which the retail sector should operate and day–to-day functioning and other modalities should be prescribed in the Rules. acquire the most basic consumer durables – bicycles.” 50 The Associated Chambers of Commerce and Industry of India (ASSOCHAM) are cited in a news-article at www. The fourth group.2 Growth in 'Organized’ Retailing Management consultant Rama Bijapurkar says “the poorest fifth live a hand-to-mouth existence and are insignificant as”48 ASSOCHAM believe that the advantages of having an industry status are that it will allow a better “focus on retailing development. The legislation should be “simple and have a futuristic approach. is (an Indian platform for entrepreneurs and business owners). Paul A.” 49 They feel the development of the retail sector can take place at a faster pace if there is a comprehensive legislation http://www. It should take into consideration the developments that are taking place in this arena worldwide. the Chamber President. The underlying idea is to have minimum modifications in the Act in the future.htm 33 . The next fifth.

and those who grew up after liberalization. those born before independence. need to apply for and obtain a series of licenses and permits. to pollution As time passes.htm 34 .4. even if it is a part of a chain. and new generations will arise. consumption patterns. “These are irritants. http://www. amongst others. Every retail outlet is required to obtain these. whilst citing Rama's view on consumption said the following: “Indians can be divided into a number of generations.” Their changing outlook has an influence on 51.2 Growth in 'Organized’ Retailing For retail operations under current Rules. [and] add time and cost to the process of establishing a retail chain”51 Kattuman (2009). Each has a different mind set and approach to consumption. the product of post-independence socialist India. These range from basic trading licenses and product specific each generation will pass into history.

” 53 Tripathi (2009) feels that it is essential that FDI be allowed in the retail sector at 100% equity. some even argue that if FDI in retail is not it could be harmful to India's retail sector. he commented that during the economic downturn that is currently being 52. Tripathi (2009) the Director of Silk Hut (a midsized silk garment retailer in Hyderabad). In fact.retailing360.Chapter 5 .1 Arguments for FDI in Retailing There are many who argue that FDI in retailing will be of benefit to India.html Singh & Banga (2008).pdf 35 . Retailing360. Tripathi. "retailing continues to be the least evolved industries and the growth of organised retailing in India has been much slower as compared to the rest of the world… One important reason for this is that retailing is one of the few sectors where FDI is not allowed. most of the retail industry players. RetailDude. page 2 – http://bimtech-retail. and generate further employment opportunities. felt that it would be good to boost the economy by facilitating higher FDI inflows. page 1 http://www. These arguments for improvements in technology and increases in FDI inflows to boost economic growth are supported by other proponents of FDI in retailing. 53. Guest Column. and highlighted that despite the developments in the industry in recent years and the large contribution to India's economy.Arguments for and against FDI in Retailing 27th April 2009. Singh & Banga (2008) undertook a research paper on the emergence & prospects of FDI in India's retailing. because this is likely to encourage domestic investment into the sector too. and discussions are often seen in the Indian media. has said "Industry experts believed that the technical edge offered by foreign companies is crucial for the survival of domestic retail companies in the [current] downturn. In addition to this. Karthik. Guest Paper.” 52 both large and small.

create new strategies and improve operations to counteract the competition from foreign players. and this would inevitably encourage investment and employment in supply chain and back-end sectors. Singh & Banga believe that FDI will ensure that products are good quality and that customer services improve. Quality and safety standards of domestics will be improved by this as only those who meet strict standards are likely to be selected. but if they are allowed in a phased manner on the basis of a well conceived and chalked out policy. benefitting consumers.1 Arguments for FDI in Retailing Singh & Banga (2008) identify seven key reasons for opening up the retail sector to FDI. Initially there may be certain reservations and apprehensions in allowing global players in India's retailing.” would develop their supply chain. providing a better shopping 'experience'. and as this happened domestic players Singh & Banga (2008) concluded from their research that it was evident that "ever growing urban and rural markets in India represent an unprecedented and vast unexplored opportunity for retailing to all types of formats. Secondly. it will encourage and promote the links between domestic/local suppliers. it was highlighted that the development of new retail formats and sector modernization in general would be brought around by FDI. they argue that the foreign 'low-cost' big players will adopt an integrated supply chain management system which in turn should help to lower the price of products. Firstly. Thirdly. particularly in inventory management and merchandising and are far more productive and efficient. manufacturers and agricultural traders to global markets. they believe that the large global retail players have a far more advanced knowledge of management. utilizing new technologies to their advantage. Joint Ventures between domestic 'organized' retailers and foreign players (such as Wal-mart & Bharti) would also help to ease the capital constraints of the domestics. they are likely to lead to more investment in organized retailing and allied sectors. Singh & Banga's fifth argument was that the foreign retailers would begin to spread their operations in India. 36 . Finally.5. Fourthly. It will also help in providing a profitable and reliable market for the domestic local players.

as Indian retailers would not be able to face this competition immediately. for which their findings were published in 2005 so as to encourage the debate of this important issue. 2. The ICRIER (2005) study revealed that many of those in favor of FDI believed that the opening up of the retail sector would be of benefit to India in terms of investment inflow. 3. It is not currently desirable for FDI to be above 51%. even in single brand retailing. and will help to protect the interests of domestic retailers. E.1 Arguments for FDI in Retailing With the above said. Certain products that are sensitive should not be allowed. The excluded products should be expressly stated in policy.5.g. 37 . technical knowledge and skills. for example. There should be restricted zones imposed by the government for the purposes of city planning. their research paper also advised that a number of points needed to be kept into consideration when opening up FDI: 1. This will allow checking and control of foreign retailer's business operations. and to enable the Government to begin drawing up key policy decisions. arms/ammunition and military equipment. 5. One of the most publicized and well known studies was produced by the Indian Council for Research on International Economic Relations (ICRIER) in association with the Academic Foundation. FDI in multi-brand retailing should be kept restricted in the near future. and would require supply chain set-up and the introduction of information technology. Supermarkets/Hypermarkets should be kept away from the city centers to protect the unorganized and small retailers who operate in these areas. Those in favor argued that organized retailing requires heavy investment if it is to expand rapidly. 4. However. the sector cap (equity limit) could be increased in due course as it has been in the telecom. banking and insurance markets. over a 5-10 year time frame so as to allow time for domestic retailers to adjust. The opening up of FDI should be phased. who were asked by the Department of Consumer Affairs and the Government of India to undertake a research project in to this area of study.

2005.” During the study by ICRIER (2005). Improved productivity and efficiency of the retail sector 3. Another 25% said that they initially suffered some losses but had changed their business strategies to face the competition. Consumers are assured of product quality. source products from India and provide a platform to domestic manufacturers to export their products in international markets through these retailers. Linked local suppliers. The remaining 10% faced losses but have not changed their business practices. and whether they had been displaced by the organized retailers' presence. According to the results. Encouraged investment in supply chain 6. Improved quality of employment – no negative impact on employment if the economy is growing. Increased speed of development in modern formats 2. logistic service and retailers – reduction in the number of intermediaries 7.5. 5. manufactures to global markets 8. page 120 38 . FDI in Retail Sector India. “65% of unorganized players felt that the growth of organized retailing has no major impact on their business. Mukherjee & Patel. They would invest in supply chain.1 Arguments for FDI in Retailing “FDI would ease the capital constraint and foreign players would bring in best management practices that can be replicated by the domestic players. Enhanced sourcing 4. None of the unorganized players had to close down their operations.” 54 The main findings of the ICRIER study revealed that FDI in retailing led to: 1. were asked questions to find out if they had been adversely affected. Low cost global retailers likely to lower prices 9. groups of traders in the unorganized retail sector who had seen organized retailers locate in close proximity to them. Led to integration of suppliers. 54. farmers. better service & shopping experience. Academic Foundation in association with ICRIER.

57.html Khatore.1 Arguments for FDI in Retailing The ICRIER (2005) study also reported that those in favour of FDI argued that the reality of the situation is that foreign retailers are already operating in India due to the loop holes in current policy and regulation. and makes the entry of foreign retailers harder to control and monitor. The Hindu Business Line. P & Parekh P.html Dey. 'FDI in India's Retail Trade: Some Additional Issues'. The Press Notes from Elliott's (2009) point of view "legitimise cascading investments.” 56 55 Although some of the above arguments supports FDI being introduced more formally to increase transparency to the regulations.5.” 55. July 2007. FT. allowing 100% Thus. logistics. and at the end of 2006. Dey. Dipankur. Pottery Barn. 4th June 2009. "For the time being.thehindubusinessline. This argument is supported by Dey (2007) . page 1 – http://rupe-india. page 1 – http://www. Bharti is to own the chain of front-end retail stores. 'FDI in India's Retail Trade: Some Additional Issues'. page 1 – as outflow of funds from India in the form of franchise payments is permitted but inflow 58 of foreign investments is restricted. while the two firms will have an equal share in a firm that will engage in wholesale. of the Research Unit for Political Economy (RUPE). this would help to improve the transparency of the regulatory system. supply chain and sourcing activities. Ralph Lauren and Gap have all made India a key Wal-Mart.1 Policy & Regulatory Environment).org/43/retail.html Elliott. In respect of single-brand retailing which is allowed up to 51% Aspects of India's economy No. Dipankur. 58. sourcing hub.” 57 It is important that regulations are made clear so that the possibility of foreign retailers using these grey areas or loop holes to set up cascading businesses dressed up as Indian controlled and owned companies is eliminated. 56. the policy of not investment appears desynchronised. For example. Dey points out that the Government of India has taken a much more liberal approach to wholesale. Khatore and Parekh (2009) point out that "several major foreign single-brand retailers have already established their presence in India through the permissible franchise route. Aspects of India's economy No. and that if FDI was opened up. 'Wholesale FDI in Retail'. commission agent services and franchising and this has resulted in many foreign retailers having already set up operations through a number of different routes. it entered a Joint Venture with the well known Indian corporation Bharti. This is seen as a preliminary step by Wal-Mart pending the removal of all restrictions on FDI in retail trade. Although FDI is restricted. 43. 9th July 2009 – http://www. one of the world's largest retailers set up a global sourcing operation in Bangalore in 2002.ft. In our opinion this defeats the whole object of having FDI restrictions in place in the retail sector. the debate becomes even more complex and relevant when you consider the recent changes by the Government in the series of Press Notes released in February 2009 (as discussed in Chapter 3. John 'India's shaky FDI rules need clarification'.htm 39 .com/2009/06/04/stories/2009060450260900. July 2007.

Rajiv. 'Should India allow FDI in Retail?'.com/Opinion/Should-India-allow-FDI-in-retail/articleshow/1882764. 11th August 2006. and thirdly. 61. 11th August 2006. The Economic Times. Kumar. arguments individually. Some restructuring will take place but local markets will not close down. if these infants are protected any longer they have good chances of becoming delinquent adults. In an article in The Economic Times (August 2006) Kumar stated that there are predominantly 3 arguments against allowing FDI in the retail sector. 11th August 2006. it would result in small retail stores closing and unemployment growing. page 1 – http://economictimes/indiatimes. Kumar (2006) counters each of these The third argument on the disruption of social community and the given way of life has a stronger case. Both can coexist as they fulfil different needs and serve different clientele.” 59 Domestic players have the best locations anyway and a The second argument is also not substantiated. Kumar (2006) argued that FDI in retail improves growth prospects.cms Kumar. as Kumar argues that "liberalization of retail raises overall economic welfare and does not result in loss of The first was that it could hinder or prevent the domestic organized retailers from growing. The Economic Times. 60. Germany the Nordic countries and also other parts of Europe. 'Should India allow FDI in Retail?'. Soon enough.cms Kumar.” 61 monopoly rents will begin to accrue and bad habits will get entrenched and it will then be more difficult to open the sector. Kumar acknowledges that shopping centers & malls could potentially result in "greater urban anonymity and a complete breakdown of the bazaar culture and the disappearance of the 'down town' space that has its own charm. experience has shown that local communities can thrive if they are empowered and involved in urban planning.5. But. in France. page 1 – http://economictimes/ clear head start. 'Should India allow FDI in Retail?'. that it would disrupt the social community and the given way of life. Tata and various other large organized retailers have already grown and matured and that "these corporates don't need protection…Actually. because domestic players such as Reliance. Rajiv. The Economic Times. retorting that the first argument is out-of-date.” 60 59.cms 40 . Rajiv.1 Arguments for FDI in Retailing Khatore and Parekh (2009) also argue that the growth projection that has been forecast for the Indian retail sector may not be achievable if the government does not act quickly in opening up single-brand and multi-brand retail sectors. page 1 – http://economictimes/indiatimes. Secondly.

com/article2. page 2 41 . will not harm equity and will ensure that monopoly rents are not encouraged. There is need to open up the sector a bit more as it will facilitate fresh infusion of funds and also promote competition.html Mehta. "The standard of living of the people will increase and they will have a better lifestyle which will result in the development of the economy as a whole. Mehta (2007) of the Birla Institute of Management Technology in giving an overview of the Indian retail market implied that regardless of the risks to traditional retailers By 'effective' FDI. 12th October 2009 http://www. 63. page 2 – http://bimtech-retail. Subbarao means investment that encourages the development of a country that fosters the development of each resident of the country.” 62 such as the 'mom and pop' stores.html Subbarao. Geetu. Indian Realty News. 64. it could be argued that FDI.” 64 said Chairman of CB Richard Ellis's South Asia office. FDI would still bring significant benefits to the Indian consumer and give them value for money. Subbarao (2008) discusses this in a research paper on FDI and Human Capital Development.1 Arguments for FDI in Retailing Kumar (2006) concludes that FDI in retail will improve prospects of growth. 2007. Real estate consultant CB Richard Ellis also believe that the government needs to open up FDI in retail so as to bring in more investment and to help promote competition in the sector that has been hit hard by the current economic slowdown. Indian Institute of Management. removed from the constraints of the retail sector focus of this report.” 63 When looking at FDI from a general point of view. and therefore should be opened up P Srinivas. 62. saying that "effective FDI indulges in enhancement of human capital of the country. if 'effective'. ' Relax Norms on Foreign Direct Investment to Ease Fresh Infusion into Retail'. “The existing FDI rules are a constraint.5. 'FDI and Human Capital Development'. will develop human capital.indianrealtynews. 'Indian Retail Overview' Birla Institute of Management Technology. February 2008.

The debate must shift into the realm of 'how' instead of 'why'. productivity. there was an increase in sales of general merchandise. Subbarao. 2005) when discussing the arguments of those who are against FDI. it is likely that foreign retail investors will look to invest in human capital development as well as provide additional tax streams. FDI may hasten this change. What is the difference between these domestic players expanding. urban chaos and shortage of retail space. P Srinivas. said that there are no restrictions for Indian large corporates to enter into retail.” 65 regards to whether FDI has lead to the enhancement of human capital. improved infrastructure.5.” 65. and even benefit SMEs.1 Arguments for FDI in Retailing Subbarao (2008) also talks of other potential benefits to host countries. a United Nations Conference on Trade and Development (UNCTAD) report in 1994 (cited by Subbarao (2008)) reported that foreign multi-national investors' "demand for highly trained graduates manifests itself in the form of financial support. particularly to business schools. global competition. There is also the advantage to the Government of additional taxes. and food and drink. giving time for policy adjustments. Therefore. and with appropriate riders on procurement to ensure that small producers gain from it. home furnishing. 'FDI and Human Capital Development'. Even without taxes. It would be better if FDI is allowed in phases. integration of markets. Many domestic players have huge expansion plans and the ability to invest billions of dollars themselves. and although retail sales were adversely affected in areas such as clothing & groceries. increased incomes. including the generation of employment. and above all. With this said. page 7 42 . or foreign investors joining and expanding in the Indian market? The Financial Express (2005) believed it could also be argued that organised retailing would have little detrimental effect on retailers if comparison is drawn from the impact of stores like Wal-Mart on small US retailers. Subbarao acknowledges that different countries have had different experiences with “India's retail sector is already undergoing a change propelled by evolving consumer demand and lifestyles. and contribution to the long-term development of developing economies. enhanced exports. Indian Institute of Management. Taxes that are generated from the entry of foreign investors in a host country can be used by the Government to re-invest in human capital development. February 2008. Retail sales increased substantially overall. skills & technology transfer. raising of The Financial Express (anonymous author. a need for revamping logistics.

J. Nair-Reichert and Weinhold (2001) studied the impact of FDI on over 24 countries in different stages of development and found that FDI had a heterogeneous impact. by studying the business strategies of foreign multinational companies in the drug and pharmaceutical industry.J. 69.R. S Kumar (1996). 2008. Nayak. It was evident that the literature revealed a heterogeneous (varied) effect on host countries. Myneni (2000) and Debroy (1996) were all identified by Nayak (2008) as showing positive benefits to the domestic companies and country as a whole. “a number of highly compelling studies show that FDI has not been beneficial to host countries. of which several of these have focused on India. 2005) had concluded “FDI on the whole in India has neither been effective for India nor for the foreign companies in India. page 13 Amar K. In fact. FDI and Complementation Strategy in a Developing Country. “Johri (1983). Palgrave Macmillan. but as a whole had tended to cause labour displacement. Nayak.” (Cited by Nayak (2008)69 (Cited by Nayak (2008) when discussing the literature that focused on India. Kumar (1990). FDI and Complementation Strategy in a Developing Country. Amar Nayak (2008) in his literature on multinationals in India discussed some of these studies to try to understand the impact of FDI on host countries. 2008. 2008. Multinationals in India. Nayak. For example.J. 68.”67 Other studies by N. Multinationals in India. page 13 Amar K. page 13 Amar K. Palgrave Macmillan. pointed out that there were apparent positive and negative effects from FDI. Nayak.” 66 companies in India.R.5.” Nayak (2008) Chakraborty and Basu (2002) had concluded from research that the Indian Government's trade liberalization policy had initially made a positive impact. Palgrave Macmillan.J. Nayak (2002. Country specific analyses of host 68 countries show that FDI has not helped them in meeting their national objectives. Amar K. 'Multinationals in India. Palgrave Macmillan. many other studies show that they have either had a negative impact or no impact on host countries. page 15 43 . it should be recognised that there have been many studies that have looked at the strengths and weaknesses of allowing FDI in developing countries in general.R.R. Multinationals in India. To the contrary. 2008. FDI and Complementation Strategy in a Developing Country'. showed that domestic companies benefited greatly by the investments of foreign pharmaceutical 66. 67. 2004. FDI and Complementation Strategy in a Developing Country.2 Arguments against FDI in Retailing When researching the justifications 'against' FDI in India's retail sector. and whilst “some studies show that FDI has benefited a host country.

but were growing at a rate of 40%. This proposal will create multiple East India Companies in our country and affect livelihoods of 1. Isn't the proposal anti.2 crore (12 million) small retailers. and because of its huge employment potential.5. The organisation 'India FDI Watch' argues why India should be kept Independent. Financial Express. There have been several parties who have spoken out strongly against FDI in Retail. then in 2006. and food sales made up 63% of total retail sales. Abrol is not alone in this view.national?” 70 Mohan Guruswamy. with organised retailing only having a share of 2% of the market.000 crores (US$ 86. Federation of Indian Chambers of Commerce and Industry (FICCI) in 2003 estimated total retail business to be 44% of GDP. Guruswamy felt it deserved special attention. were only a small amount of the total market. With food retail trade being a significantly large segment of India's GDP. and a Harvard graduate.financialexpress. 27th May 2005 – http://www.00. but estimates have placed it at around Rs 4. All have compelling arguments that require further 44 . Is FDI in Retail a Death Knell for SMEs'. They acknowledged that domestic retail businesses that were 'corporate' owned. a privately funded think tank focused on the study and review of public policy in India. the President of the Bombay Small Scale Industries Association is cited by the Financial Express website as having said “various ministers of the present government are proposing FDI in retail. More Bad than Good?' Guruswamy et al (2003) highlighted that unorganised retailing accounted for approximately 98% (in 2003) of total trade. and a third in 2007. The size of the retail market is very hard to gauge.50 million) which was forecast at the time to double by 2005. We believe multinational retail and World BankInternational Monetary Fund lobbies and some self-serving bureaucrats are supporting it. J P Mohanty and Thomas J Korah) he produced a document titled 'FDI in India's Retail Sector.2 Arguments against FDI in Retailing Abrol (2005). Along with several colleagues (K Sharma. and the Center for Policy Alternatives Society (CPAS).021. The first in 2003. have produced a series of reports on the problems with FDI in Retail. 70. Chairman of CPAS in New Delhi was the former Advisor to the Finance Minister.

which would have a trickle down effect on employment and economic activity in rural locations. Given the already over-crowded agriculture sector. given the lack of opportunities. seemingly out of circumstance rather than choice. many millions [of] Indians are virtually forced into the services sector. The furious growth of the domestic corporate retailers would bring about enough investment. This raised the question of whether FDI was necessary at all in this sector. a retailer is born. with limited alternative employment opportunities. and the hard nature and relatively low wages of jobs in both. But unemployment is high and many of the unemployed people turn to very informal retailing to try and make some kind of living. They argued that one of the main reasons behind the growth of retail and its fragmented nature was that Retailing was “probably the primary form of disguised unemployment/underemployment in the country. Guruswamy et al (2003) talked of retail as a 'Forced Employment' sector in India. and the stagnating manufacturing sector. Here. it is almost a natural decision for an individual to set up a small shop or store… and thus. the growth of the domestic 'organised sector' alone would result in efficiency improvements and an increase in food retail sales activity. 45 .” This would explain why India is so highly fragmented with estimates at the time of the above report suggesting in the region of 11 million outlets with only 4% of them being larger than 500 square feet in size.5. if there is enough domestic capital being injected in to the retail sector.2 Arguments against FDI in Retailing Guruswamy et al's (2003) first note was that even if FDI was not opened up.

then the retail sector manages to absorb them all.html 46 . of employees alongside the average 71. 43. and if Wal-mart opened an average store in each city and they performed as well as an average Wal-mart store employing just over 10. Dey. July 2007. 'FDI in India's Retail Trade: Some Additional Issues'.html Dey. or a peasant gets evicted from their land. Aspects of India's economy No.540 people. July 2007. which would lead to the employment of just 43. it would be the equivalent of 432. 72. page 1 – http://rupe-india. Guruswamy et al (2003) discussed a particular foreign retailer who has subsequently entered the Indian market in 'cash & carry' wholesale (Wal-mart) arguing that if they were to enter India.000 employees only. or the stagnant manufacturing industry fails to soak up new entrants to the job market. after agriculture. retail sector… Those displaced as a result of FDI in retail may not show up as an increase in visible unemployment”72 It was calculated that on the basis that India had 35 towns with over 1 million people in each. and educated youth turn to selling newspapers.2 Arguments against FDI in Retailing Dey (2007) recognized this problem also. and stated that "the retail sector [in India] acts as an important shock absorber for the present social system. a factory closes.”71 When for example. A better off unemployed person might start telephone services and retail telecom cards. page 2 – http://rupe-india. "Thus.000 people being displaced. 800 billion of turnover. the incidence of underemployment is probably highest in the Indian Interestingly. Aspects of India's economy No. Dipankur. this would equate to Rs. Dipankur. The report expanded on this theory further arguing that if FDI retailers were to acquire say 20% of retail trade. 43. Skilled laborers end up as street hawkers. then by extrapolating the turnover and no. they could use predatory strategies to force out smaller competition and that this would create unemployment in the 'FDI in India's Retail Trade: Some Additional Issues'.5. but would displace approximately 8 million people employed in the unorganised retail sector.

Conditions – Conditions with regards to sourcing of farm produce. 5. Timescale / Safeguards – The opening up of the retail sector should be slow and gradual so as to allow for the displacement of labor to be analyzed and policies amended where appropriate. These policies should encourage those in the unorganized sector to migrate to the organized sector. CPAS make a number of recommendations for issues that should be addressed before considering the opening up of the retail sector to foreigners. in the belief that this will offer some compensation for the displaced labor from the retail industry. with social safeguards in place. CPAS strongly suggest that the manufacturing sector must be improved. These recommendations are summarised below: 1. Ensure high entry costs for foreign retailers and implement regulations so that the retailer cannot use predatory tactics with their pricing to gain market share aggressively. Bank Finance – The government should create suitable lending policies so as to assist domestic organized and unorganized retailers to grow and improve their efficiency. in order to address the two problems of limited promotion and marketing ability.5. domestically manufactured merchandise and imported goods should be applied to large foreign retail companies. Agricultural Perishable Produce Commission (APPC) – A Commission to ensure that procurement costs are fair for farmers of perishable commodities. 2. 4. The conditions should encourage the sourcing of goods from India's domestic market. 6.2 Arguments against FDI in Retailing Centre for Policy Alternatives' (CPAS) first report by as detailed above. 3. as well as assisting market penetration. Manufacturing Sector – In order to cope with the labor displacement. and they have supported FDI in other areas where they feel the evidence suggests that it will benefit and grow the economy. For the retail sector. 47 . Co-operative Stores – They recommend that the government should encourage co-operative stores so as to source and stock consumer goods/commodities from the small producers. acknowledges that there are many good things that could come from FDI. National Commission – A National Commission should be set up to carry out research in to the retail sector to help create policies that will support the sector if and when FDI arrives. 7.

2003. page 16-19 http://cpasindia. so that their higher costs are not duly nullified by the presence of 74 The research study undertaken by ICRIER (2005) revealed that those against FDI in retail argue that the entry of large multi-national retailers could upset India's import balance. page 16-19 http://cpasindia. and increase employment and economic activity. Training to provide skills in transport. fish. New Delhi. hygiene. Creation of certification and price administration bodies to oversee regulation of quality and to assist with the upgrading of technical & human interface in the 'rural-to-urban supply chain'. Food Retail Sector a. China has "mastered the complexities of the procurement-logistics supply chain and do provide huge standardised volumes of quality household products at a low price within strict time schedules. It argues that the efficiency of the large global retailers is due to their ability to procure goods globally from the cheapest possible source. CPAS believe that it will help to ensure that the domestic and foreign retailers are on equal ground. Wal-Mart procures £18 billion worth of Goods from China giving it a ready pipeline through which cheaper goods can flow into the Indian economic hinterland. “FDI in India's Retail Sector. b. More Bad than Good?” Centre for Policy Alternatives (CPAS). ie. K Sharma. and that domestic retailers are not especially disadvantaged. storing. "The small retailers must be given ample opportunity to be able to provide a more personalized service. grading. from China) and may prefer this to sourcing from India.5. refrigeration equipment maintenance etc. purchasing such a large volume of any given item. Sharma & Jos (2007) suggest the potential problem of a 'China Pipeline'. TJ Korah. New Delhi. JP Mohanty. CPAS's Chairman Guruswamy. sorting. Guruswamy.2 Arguments against FDI in Retailing 8. They are able to force prices down purely by economies of scale. d.pdf 48 . handling. This view is supported by Improve Infrastructure for retailing with focus on logistics and hygiene c. TJ Korah. JP Mohanty. Credit availability e.73 By undertaking their recommendations. “FDI in India's Retail Sector. K Sharma.” fruit and veg to provide new products in new markets and help to improve consumer choice. as a number of these prefer to source globally (for example.pdf 74. Guruswamy. big supermarkets and hypermarkets. In a recent study. More Bad than Good?” Centre for Policy Alternatives (CPAS). Implement cross integration of India's existing long food supply chains such as dairy. 2003.

as it has happened elsewhere in the world which can be seen. 'FDI in Retail Sector India'. http://www. and therefore the foreign retail investors will not bring large inflows of foreign investment. page 118 http://indiafdiwatch.2 Arguments against FDI in Retailing Those opposed also believe that foreign retail investors may use predatory pricing techniques. which are aggressive and can force out domestic players by selling at below cost until the domestics have been eliminated. for example in an article by the Institute for Local Self-Reliance pricing in the United States in 2000.indiafdiwatch.”76 India FDI Watch is a national coalition of labor unions. the multinational retailers may remit the profits earned in India to their own country. To the contrary. Academic Foundation in association with ICRIER. NGOs and academics that have formed to block attempts by Prime Minister Singh's government to allow foreign direct investment in India's retail markets (www.newrules. They have produced several reports that argue that India should say no to FDI in retail unless the foreign retailers "make satisfactory guarantees that would protect communities. they argue that 75 "after making initial investment on basic 2005.” 77 where Wal-mart were charged with predatory 75. 76. guarantee fair wages and working conditions for their own employees and source employees along with union protection and agreements.php?id=80 49 . This is not such an inconceivable concept. Patel N. environmentalists. 77. trade Mukherjee A. Then the foreign retailers have a monopoly of the market and can increase prices and reap higher profits. insure the stability of existing small businesses and traders. The trading associations have pointed to the fact that retail trade does not require large amounts of investment to operate because goods are bought on credit and sales are mainly and insure that a significant percentage of sourcing derives from the Indian market.

pdf 50 . protection against all material and intellectual property. 'hire and fire' policy. as the GATS agreement may prevent them. It will be too late for the government to go back on any decision.http://indiafdiwatch.Page 25 .org/fileadmin/India_site/FDI_in_retail. They argue that if the government is to change labour laws (as it has already proposed to do in 2005). 2009.Page 25 . a mechanism for the settlement of 79. The same campaign report argued that Trans National Companies (TNCs) are trying to bring in changes through the World Trade Organisation's GATS (General Agreement on Trade in Services) to "safeguard their vested This protection could be detrimental if India decides to open FDI in retail. 80. regulatory 80 and administrative transparency. India FDI Watch 'Keep India Independent!'.pdf India FDI Watch 'Keep India Independent!'. and then find that it is not successful. 2009. effective protection t hr o ugh against direct expropriation as well as against indirect expropriation d i sc r i mi na t o r y treatment. 2009.pdf India FDI Watch 'Keep India Independent!'. and the right to determine its own ownership structure and provisions for legal. 78.5.http://indiafdiwatch. a mechanism for compensation in the case of expropriation.http://indiafdiwatch. as the model used by global retailers requires flexible labour markets to be 78 interest”79 The proposed GATS agreement would provide that an investor would not be subject to the introduction of new barriers to investment in a host country. would be provided with post investment protection. then the safe guards that have been in place to protect India's labour force will be lost and the business environment will be far more conducive to FDI and global integration.2 Arguments against FDI in Retailing One particular India FDI Watch campaign believed that there is pressure on the government from the IMF and World Bank to allow labour standards to be dictated by the demands of supply chain flexibility ie. Page 23 .

000 participants in the survey. It covers not only participants who are within the retail trade directly. there were 243 respondents. software & IT companies. and educational Out of the 70.0 Survey Design & Sample The survey sample consists of 70. 51 .000 people who have registered to receive 'The India Retail Newsletter'. franchisors and franchisees. 91% of the chosen sample is employed in the Indian retail sector. hardware and system manufacturers. consulting companies. which provides the latest news on the sector. real estate companies. an e-web news service. The sample of people who are registered is made up of Retailers. retail service providers.Chapter 6 . broken down by Industry. and the remaining 9% are in inter-related industries and sub-sectors. Figure 4 below shows the profile of the survey sample used to distribute the survey questionnaire. Figure 4 Survey Sample by Industry 1% 1% 2% 1% 4% headhunting institutions. Fast Moving Consumer Goods (FMCG) companies and manufacturers. but also others within retail-related sectors (as detailed above) and therefore should provide the researcher with a balanced view from various viewpoints. firms. Retail FMCG / Apparel / Manufacturing Media Real Estate Information Technology Other 91% Retail A survey sample of this size is more than is required for the purposes of obtaining a representative view of the domestic Indian retail sector.Detailed analysis of factors and conditions related to FDI 6.

1 Questions Please see Appendix II for Survey Questions. for example. as well as allow for thoughts and ideas to be discovered that perhaps have not been considered in the literature review and in earlier stages of this research. occupation. possible labour displacement. reforms policy are not necessary'. by encouraging respondents to give reasons as to why the felt a particular way.6. Therefore.0 Survey Design & Sample The questionnaire was designed to contain both open and closed ended questions for a number of reasons. FDI should be opened up'. or 'No. Open ended questions allow further clarification of the closed-ended responses. 'Yes. A 'respondent ID number' was allocated to each response when collated on to computer software so that specific respondent comments could be referred to in the analysis. then designed to link in to these closed questions and to draw out more detail.e. 6. for example. or what they would propose as solutions to a specific problem. The closed ended questions would be able to provide a simple view of whether a particular respondent believed. 52 . and for ease of reference. name. The open-ended questions were It was important to ensure that anonymity and privacy were considered throughout the survey. sector etc were not compulsory. and to protect their personal views and opinions. The questions were written after a preliminary review of the initial literature discovered during the early stages of the research. The justification for using closed-ended questions was to counter-balance any mis-interpretation / lack of response in the qualitative areas. so as not to discourage participants. the preliminary data on the questionnaire i.

but not the specific question that is being analysed. The following analysis charts display the results visually. of people 250 203 200 150 100 50 38 2 0 Yes No No response Chart S2 53 . but should be read in conjunction with Chapter 4.3 Results & Findings. of people 200 189 Each chart states if it requires the 180 160 140 120 100 80 60 48 40 20 6 0 Yes No No response Chart S1 Should the Indian Government open up FDI restrictions in the Retail Sector ? (Question 2) No.6. and 'no response' rates are recorded for those who answered some of the survey questions. and using the Coding Key in Appendix I where appropriate. There were 243 respondents in total.2 Data Analysis Below is a summary of the data results from the survey following analysis. of people aware of current FDI in Retail Policy (Question 1) No. No. Coding Key for interpretation.

of respondents Chart S3 Are you happy with the current FDI Retail policy as it is? (Question 4) No.Coded Qualitative Analysis of Reasons why FDI should or should not be opened up in India (Question 3 .please see Coding Key) Coded Response X K J I H G F E D C B A 0 1 5 10 20 30 40 50 60 70 8 20 26 25 25 11 11 15 60 36 No. of people 250 200 199 150 100 50 41 3 0 Yes No No response Chart S4 What conditions should be imposed on foreign retailers if policy is changed? (Question 5) None 13% Only Allow FDI In Specific Cities/Areas 0% Other Restrictions 8% No Response 4% An Exclusion Of Specific Products For The Domestic Retailer 3% Equity Limits 4% A Minimum Investment Amount Requirement 8% Only Allow Certain Retail Formats (Eg: Malls) 12% Certain Products Must Be Manufactured/Sourced In India By The Foreign Investor 31% Only Allow Branded Products 17% Chart S5 54 .

3% M 2% P 6% O 1% K 0. of people 250 223 200 150 100 50 15 5 0 Yes No No response Chart S8 55 . technical skills and consumer choice? (Question 8) No.Should Government reforms be made to support domestic retailers? (Question 6) No of People 180 170 160 140 120 100 80 70 60 40 20 3 0 Yes No No response Chart S6 Coded Analysis of Suggested Reforms to Protect Domestic Retailers (Question 7 please see Coding Key) Y 12% (no reforms necessary) A 7% B 3% C 2% D 1% E 1% F 1% H 3% I 1% G 3% J 10% (Subsidy) X 35% (no response) N 1% Q T S R 3% 1% 3% 2% V 1% U 0.3% L 1% W 1% Chart S7 Will lifting restrictions on FDI in retailing allow more investment.

Please see Coding Key)) A 5% B 6% X 40% C 11% D 28% F 8% E 2% Chart S9 Coded Analysis of the no. of people 200 182 180 160 140 120 100 80 60 40 25 20 0 FALSE (A) TRUE (B) Answer NO RESPONSE (X) 36 (Question 9 Please see Coding Key) Chart S10 How many years should FDI policy be 'phased in' to allow domes industry & market to adjust? tic (Question 11) No of people 50 46 45 40 35 30 25 20 17 15 10 5 0 0 1 2 3 Years 4 5-6 7-10 10+ 9 39 43 38 27 8 Chart S11 56 .Coded Analysis of Suggested Solutions to potential Labour Displacement problem (Question 10 . of people who believe the argument that "foreign retailers will not 'own a stake' and therefore will make little investment…" No.

6. due to the very fact that the topic has been discussed in the Indian media many a time over the last decade.3 Chart S3 (Question 3) Please give reasons for your answer to Question 2 Question 3 was an open ended question asking why participants thought FDI policy should or should not be opened up.) 57 . although the data analysis also highlights that there is still a small but significant (15. The awareness was anticipated to be high. and 2.6. 6. Responses were analysed and coded according to common themes.6% of respondents giving 'no response'.7% of respondents were aware of current FDI in retail policy. with 19. A very small 'no response' rate was observed from this question at 0.5% of respondents said 'Yes'.9%. This data shows that a significant amount of people within the domestic market place are paying an interest in the current policies and how these could influence their industry and country. whilst only 15. 11 themes or categories were identified and allocated a code (please see Code Key in Appendix I for identification of categories / themes.7% not being aware.3.2 Chart S2 (Question 2) Do you think the Indian Government should open up Foreign Direct Investment (FDI) restrictions in the Retail Sector? It was evident from the responses that a significant number of respondents would like to see the opening up of FDI in the retail sector.3 Results & Findings 6.3. India should open up the FDI policy.3.1 Chart S1 (Question 1) Are you aware of the current FDI in Retail Regulation & Policy? The first question revealed that 77.6% said 'No'.6%) group of people within the domestic industry who oppose the idea of opening up FDI. 83. These results show a strong amount of support for the concept of opening up FDI.

70% of respondents believe that one or more of the above reasons are justification for opening up FDI in the retail sector. and is a sign that the domestic market feels positively about the widening of FDI policy and the benefits it could bring to the countries industry and wider economy.3% of respondents mentioned either 1 or 2 of the above reasons for believing FDI should be opened up. made specific mention of the argument of allowing 'free market efficiency' to reign. they also felt that in the future once the 'organized' retail had grown and reforms had taken place. The researcher anticipated the number of respondents in this group to be higher. an improved competitive environment which in turn would lead to consumer benefits. However.3. supply chain and logistics. as well as offer improvements to infrastructure.3 Results & Findings 6. these figures could differentiate due to the fact that a 15. innovation and best practices. Therefore. it would be of benefit to the country to allow FDI in the sector. 6.5% of respondents felt strongly that FDI would be of no benefit and should not be allowed. They also believe that it would increase employment and economic growth and bring investment to the domestic sector including related-sectors such as agricultural and manufacturing operations. technology.3 Chart S3 (Question 3) 24.6% of respondents said 'no' to opening up FDI in Question 2 (see Chart S2). This particular group of respondents (coded H) were 'particularly proFDI' and gave multiple reasons (as above) as to why the sector should be opened up. because they felt that the domestic market was not developed enough yet.7% of respondents believed that opening up FDI in the retail sector would allow for improved skills. A small number of respondents.5% were against the idea of opening up FDI yet. Even more revealing is that a further 45. 4.2% of participants did not respond or make any comments on Question 3. and for there to be less 'protectionism' within the retail sector. A further 4. This reflects a strong sentiment towards FDI. 58 . given that 15.6. However.2%.

3 Results & Findings 6. In terms of retail formats. while an overwhelming majority of 81. and a further 8% felt that a minimum investment amount should be specified in policy. 16. Only 1.3.2% of people did not respond to this question which is an acceptable level. for example. 12% believed that foreign retailers should only be allowed to operate in specific formats.6. The most significant group of respondents (31%). 59 . but more surprising was the 13% of people who supported 'no conditions' at all. were those who felt that foreign investors should have to source certain products from India.9% of people were satisfied with the policies as they are. and thereby growing the manufacturing/agricultural industries and India's GDP. malls. Participants were asked to select a condition they felt should be imposed (if any). The 'no response' rate on this particular question was 4%. conditions imposed on FDI at all.5 Chart S5 (Question 5) If FDI policy is to open up in the future. A smaller group of respondents (4%) felt that Equity limits should be put (or kept) in place (as currently imposed on single-brand retail at 51% equity) 3% of respondents supported the idea of excluding certain products to protect domestic players. 17% thought that only branded products should be allowed through FDI. and 8% felt that 'other restrictions/conditions' would be more appropriate than the options available for selection in the multiple-choice box in Question 5. with a number of suggested conditions that could be imposed on foreign investors.4 Chart S4 (Question 4) Are you happy with the current FDI Retail policy as it is? Question 4 was intended to obtain a view of whether the domestic market was happy with the current policies.3. 6. while 13% of respondents felt that there should be no The data from question 5 reveals a strong support for conditions that involve sourcing Indian products. do you think any of the following conditions should be imposed on foreign retailers? Question 5 was a multiple-choice question.9% were dissatisfied with the policies as they stand today. Branded products and format restrictions were also supported by a number of respondents.

6. help to support domestic retailers. it is evident that although 83.6.5% of people felt that FDI should be opened up. specifically in the form of low-rate loans/bank finance. bring down their costs and offer better value so as to be able to compete with foreign investors in the market place. decision taking speed etc of small retailers can't be matched by big retailers. The other 28% of respondents felt that no reforms would be necessary to support the domestic retailers. so that domestic retailers can become more efficient. The data was analysed and coded according to common themes or specific recommendations for reform. and provide for equal access to an organised wholesale & supply chain infrastructure. would be able to survive alongside the foreign investors with out any issues.6 Chart S6 (Question 6) Do you think that government reforms need to be made to support domestic retailers so that they can face the foreign investment competition? The data collected from Question 6 revealed that 70% of respondents felt that reforms should be made by the government to ensure that the domestic retailers are supported. what reforms do you think should / should not be made? Question 7 was open-ended. 70% also felt that reforms were necessary to support domestic retailers.3 Results & Findings 6. the kind of personalised service. 12% felt that no reforms were necessary in order to protect the domestic retailers. 94) 7% of respondents (coded 'A') suggested the government invest in. which consisted of 25 different coded categories from the 243 responses (please see Coding Key in Appendix I). For example. particularly small 'kirana / mom & pop' stores. The 'no response' rate was reasonably low at 2%. There was also a tendency with these respondents to commenting that the domestic players.3. When interpreting this question alongside Chart S2 (Question 2). had a tendency to also mention that their preference was for a 'free market' and that healthy competition would be preferred.3. In contrast to this.7 Chart S7 (Question 7) Following Question 6. This group (coded 'Y') who commented that no reforms were necessary. and aimed to discover what reforms the survey participants believed would. or would not. 10% of the survey respondents recommended that the government provide subsidy to domestic retailers. 60 .” (Respondent ID no. one respondent said “they [small retailers] will continue to exist.

3. clearly acknowledge that it would bring benefits to the economy/industry (in terms of investment & skills) and to society (in consumer choice).6. 7% answered 'No'. 6. with 3% believing that there is a need to reduce administration and formalities for domestic players to facilitate.7 Chart S7 (Question 7) Tax relief and tax incentives for domestic retailers was a suggested recommendation by 6% of respondent.3 Results & Findings 6. A further 3% recommended improving real estate regulations to facilitate the provision of land to domestics and to provide for allocation of land and city planning. believing that lifting restrictions would bring more investment. technical skills and consumer choice in India. exporting or opening a new retail outlet (which can require up to 30 licences). technical skills and consumer choice? Question 8 specifically asked whether people agreed Yes or No to that lifting restrictions on FDI would allow more investment. This means that a number of respondents whilst having said 'no' they do not believe FDI should be opened up.8 Chart S8 (Question 8) Do you believe that lifting restrictions on FDI in retailing will allow more investment. for example. 3% felt that implementing educational retail training initiatives would be of benefit.3.5% of people believed FDI should be opened up. Bureaucracy was raised as a concern. and there was a 2% 'no response' rate on this question. 91% of respondents answered 'Yes'. we can see that a higher proportion of people (91%) believe it would bring increased investment. skills & consumer choice. By comparing these results to Chart S2 (Question 2) it reveals that although 83. technical skills and consumer choices. 61 .

Also the money in India should be used for the welfare and development of India first. 53 also agreed with the statement. The responses analysed. there is certainly a fear of 'flight of capital' after some time.6. “by constructing businesses and providing fair wages. conveyed strong support for the concept that foreign retailers will be looking to stay for the longer term in India (being that it has such huge retail market potential).3.” Respondent ID no. that foreign retailers will not 'own a stake' in India. or argued that it was not an issue of concern. 98). 56) Another argued that “It is not true.” (respondent ID no. How can you counter this argument? Question 9 was an open ended question. (please see Coding Key Question 9. and therefore will have to invest in improving infrastructure. An interesting thought was also considered by respondent ID no. so as to make a success of their Indian operations. and therefore will make little investment.” It is evident that the majority of people did not believe in the statement posed by Question 9. but reap the profits all the same. 81. and therefore will make little investment. respondent ID no. Appendix I) 75% of respondents believed the statement to be false. It is unlikely that foreign investors can overlook this point and hence their financial involvement would be high. As such. but reap the profits all the same'. which asked participants to counter the argument that 'foreign retailers will not 'own a stake' in India. which needs to [be] protected with proper regulations” (respondent ID no. One particular respondent said that “Unless the foreign retailers really invest in India.3 Results & Findings 6. and provided simple solutions to the problems. or believed the statement to be 'true' and agreed – these respondents offered no counter argument and could provide no solutions to this potential problem. isn't that a defacto investment?” 10% believed the statement to be true. saying “this argument has some validity. technology and skills for example. 62 . I believe that fair returns should be in proportion to the investment made by the foreign investors.these respondents were able to counter the argument with solutions to prevent this from happening.9 Chart S9 (Question 9) It is argued by some who are against FDI. Only long haul players will really benefit from the Indian market. supply chain. retail needs heavy investments both front end and back end. The responses were analysed and coded according to whether they believed the statement to be 'false' and disagreed . they would not be able to reap the profits. Yes. 141 said “I am for [this] argument. For example.

11% of respondents believed that there were no solutions to labour displacement. and coded according to general themes in response. This could be interpreted to mean that this group has accepted labor displacement as one of the obvious risks of FDI. to compensate for the labor displacement. labor displacement. This is not to say that the participants were either for or opposed to FDI. 91 said “I don't think that organized retail presents any threat of labour displacement in the unorganised retail sector. but merely that labour displacement was not something they believed could be 'solved'.3 Results & Findings 6. but that the benefits would outweigh the risks. and in back-end services.3. Question 10. For example. 8% of respondents to question 10 argued that providing skills and comprehensive training to existing 'unorganized' retailers would allow them to upgrade their businesses and be innovative so as to continue employment in the retail sector without being displaced. 5% believed of people believed the Government should be responsible for providing and controlling equal employment opportunities in both the growing 'organized' sector. These respondents had a tendency to believe that labor laws were in need of upgrading to support . 12% of these respondents also thought that labour displacement was inevitable. to offer further employment in back-end services. where participants were asked to suggest ways in which they thought one of the key problems. Rather it would provide better opportunities. A further 6% thought that foreign retailers should be asked to invest in retail related facilities first and foremost. Analysing this against the number of people that believed FDI should be opened up in India (203 respondents). The responses were analysed and interpreted. and that displacement was inevitable if FDI in retail was opened up. Please see Coding Key. respondent ID no. manufacturing and farming.10 Chart S10 (Question 10) Can you think of any solutions to the potential problems of labor displacement in the unorganized retail sector if FDI regulations are opened up? Question 10 was an open ended question. Appendix I The data analysis revealed that 28% of the respondents believed that labour displacement simply wouldn't happen.” To the contrary. 63 . could be resolved.6.

and a small minority at 3% thought that the phasing should be over a period greater than 10 years.10 Chart S10 (Question 10) The final group of respondents consisted of 3% who believed that there should be compensation. The analysis of Question 10 has revealed that the majority of people believe that either labor displacement will not happen at all against those who believe if labor displacement does happen. with a weighting toward 2-3 years being preferable. foreign retailers. thought 1 to 4 years was adequate enough time to allow for the successful adaptation of domestic retailers.11 Chart S11 (Question 11) Over how many years do you think FDI policy could be phased in to allow domestic industries/markets to adjust successfully? Question 11 was a closed ended multiple choice question. 7% believed 7-10 years. 48%.3. A further 19% thought 5-6 years would be more appropriate. 64 . The majority of respondents.6. No participant specified whether this should be from the Government.3. 6.3 Results & Findings 6. or both. This particular group believed also that the retail sector should be opened up imminently. there is little that can be done to prevent it. asking participants to say over how long a period they thought FDI should be opened up to allow domestic retailers to adjust successfully (if at all). 16% of respondents believed phasing in would not allow for any successful adjustment of domestic retailers. rights and benefits provided to those that are displaced.

65 . real estate regulations as well as general economic problems such as high unemployment. and the retail industry contributes approximately 40% of this GDP.Chapter 7 -Conclusion 7. inflation and 'jobless growth'. Economic growth in India is good (with a 5 year average of over 8% real growth). 7. majority of the domestic retail players. and to explore thoughts on the issues faced by the sector. it is appropriate to review the objectives that were set out earlier in Chapter 1:1) 2) 3) 4) To investigate the Indian retail market place and current policy & regulations with regards to Examine the arguments for and against changing current policy and improving the regulatory Compare the opinions of the Indian domestic retail sector so as to interpret market sentiment Consider what solutions could potentially resolve the issues and are supported by the foreign investors. India has come a long way in this regard.0 Introduction So as to draw conclusions from this study. For example. economic reforms have been underway to utilize more foreign investment and to become increasingly efficient and internationally competitive. environment towards foreign investment. Clothing & Textiles also holds a fairly significant share of the retail markets revenue. The Food & Beverages vertical has huge potential for the organised retail sector as to date less than 1% of this vertical has been penetrated by organized retailers.1 Indian market place and FDI policy & regulations It was clear from the literature review that India is a very unique market and has an extremely dominant 'unorganized' sector that is concerned about the introduction of FDI in the retailing sector. and yet still has a very under developed 'organized sector'. there are issues with labour laws. but there are still areas that require further reform and improvement. and therefore offers exciting growth potential. We believe that these are the two most likely target sectors for foreign investors. Since 1991.

66 . for example. desires and incomes are changing and demands for different retail formats are emerging. There needs to be more clarity in this area of policy. with a burgeoning middle-class.Chapter 7 -Conclusion 7. No multi-brand retailing is allowed by foreign investors. Providing industry status would allow comprehensive legislation to be put in place to govern the running of the retail sector. This in turn would assist in accelerated growth of the retail sector and would remove a number of barriers that are currently slowing down growth. The retail sector in India does not have 'industry status' and that this causes difficulties for all concerned. with only a few sectors (predominantly service sectors such as retailing) that are restricted.1 Indian market place and FDI policy & regulations Changing consumer patterns appear to be a large factor in the growth of the Indian 'organised' retail sector. as the changes allow Joint Ventures to effectively create subcompanies (cascading). for example. Consumer habits. Special Economic Zones. The literature review showed that current investment policy is already quite liberal towards FDI in many sectors. such as bureaucracy. the government seems to be working on various solutions. Retailing is The recent changes brought about through a series of Press Notes in 2009 have caused confusion over the policy. The literature review revealed that although there are hurdles to be overcome in the policy and regulatory environment. We believe this may encourage foreign investors to use this 'loop hole' to create sub-companies so that they can exceed FDI caps. and potentially enter areas such as multi-brand retailing through the 'back-door' without technically breaking the rules. formalities and lack of finance for retailers. and 51% in single-brand retailing. but 100% equity is only allowed in Wholesale Cash & Carry. allowed via a number of methods such as franchising/joint venture. and a growing young population with a willingness to spend.

11. Research suggests that 'unorganised' retailers have not been adversely affected by the location and growth of 'organised' retailers nearby. Foreign retailers would encourage employment in back-end services 14. Increased FDI in Retail will ensure quality products and customer services Will promote links between domestic/local suppliers. particularly in the current downturn. manufacturers and agricultural traders with the global market 10. which in . Most acknowledged that phasing-in should be considered and that some restrictions would be required on equity limits. infrastructure etc) 67 7. 6. Sourcing / Exports from India would be enhanced. Additional taxes will be raised for the benefit of India 23. tended to adopt new strategies to face competition 19. certain products. and certain 'zones' 18. 3. 20. Standards (quality. Retail Growth forecasts may not be achievable without FDI stimulus 22. The technical edge offered by foreign investors is crucial to the survival of domestic retailers. Domestic players would develop new strategies to improve operations to counteract any competition from foreign players 13.2 Arguments for & against changing policy and improving the regulatory environment. Those that were affected. 9. 5. investment in education. Foreign 'low-cost' retailers will set-up/adopt integrated supply chain management. 4. Reduce the number of intermediaries 16. Knowledge & skills would be transferred. 21. Improvements in quality of employment 15. health & safety etc) & best practices would improve 12. Improve transparency and prevent 'back-door' entry and 'loop holes'.Chapter 7 -Conclusion 7. 8. 2. Those in favour of FDI in Retail argue the following reasons:1. Contribution to the long-term development of the country (ie. Not logical to have 51% restriction on single brand retailing when so many foreign single brand retailers have already entered through the franchise route. Allowing 100% FDI will encourage domestic investment in the sector Economic boost with increased FDI inflows Improve the standard of living of the country as a whole (enhanced Human Capital) Improve productivity and efficiency in management turn will lower prices for consumers and improve the infrastructure of the country. Joint Ventures would help to ease the capital constraints of domestic companies 17.

3. others have shown initial positive results but with a tendency on the whole towards causing labour displacement. but would destroy the safeguards that are in place to protect the labour force. 6. ie. After minimal initial investment in basic infrastructure. raising the question of whether FDI was required in this sector at all. Those displaced by FDI may not show up as a 'visible' increase in unemployment. Retail as a 'Forced Employment' – the sector is one of the primary forms of 'disguised employment / under employment' which acts as a shock absorber for the present social system. 4. the results vary. Foreign retailers may use predatory strategies to force out smaller competition Various issues such as Bank Finance. Hire and Fire' Policy in labour law would be more conducive to an FDI environment. Those against the opening up of FDI in the retail sector argue the following reasons:1. 11. 9.Chapter 7 -Conclusion 7. Foreign retailers should not be allowed until they make satisfactory guarantees to protect communities. Foreign investors may re-patriate profits back home. FDI has a heterogeneous effect on countries. safeguards. 2. 8.2 Arguments for & against changing policy and improving the regulatory environment. and improvements to Potential to upset the import balance. The fast growth of domestic 'organised' retailing (40% per annum) would result in efficiency improvements and increased retail sales which would in turn create employment and economic growth. 5. support small businesses and traders. 10. with the creation of a 'China Pipeline'. soaking up unemployed people who have little alternative but to try and make some kind of living. conditions. 68 . 7. guarantee fair wages and working conditions. Amendments to GATS Agreements could mean that any policy changes on FDI will be irreversible as investments will be protected and have immunity to new barriers to trade. manufacturing sector are required to be addressed before FDI in Retail should be considered. Some studies have shown success of FDI in India. and ensure minimum sourcing from India.

12% of respondents felt that no support was necessary and that domestic retailers would support themselves. This research has revealed that there is strong support for imposing a condition on foreign retailers to source certain products in India. However. technology. The survey revealed that there is a strong market sentiment towards opening up FDI.5% of people supporting the opening of the sector. as well as some interest in restricting FDI to branded products.Chapter 7 -Conclusion 7. whilst 28% felt that domestic retailers did not need reforms to support them. They also thought that it would increase employment and economic growth and draw more investment in to the domestic sector and sub-sectors. 69 . innovation and best practises as well as supply chain. it was found that 70% of people also felt that reforms should be made to support domestic retailers in the face of competition from FDI. It was also suggested that bureaucracy and formalities be reduced as this was currently hindering domestic/foreign retailers and was restricting the growth of the sector.3 Market sentiment and exploration of domestic retailers' thoughts. and certain retail formats. Overall. 70% of people believe that it would have a positive impact. provision of equal access to organized wholesale & supply chain infrastructure and tax relief for domestic retailers. Interestingly. infrastructure and logistics improvements. but that it would be ready in the near future and should begin planning a 'phased system'. subsidies in the form of low-rate loans. The reforms that were most commonly supported were. A small percentage of people feel that India isn't quite ready to open up its foreign retail policy yet. The domestic retailers who responded believe that FDI in retail will bring the benefit of skills transfer. A minority (4%) believed there would be no benefits at all of allowing FDI and were against opening up policy. The data collated from the survey highlighted a number of recommended reforms to support domestic retailers. with 83.

It is evident from the survey results that 28% of people do not support the view that allowing FDI will cause labour displacement. 19% believed a 5-6 year phasing in period would be more successful. manufacturing and farming initially to compensate for the labour displacement. Foreign retailers should invest in back-end services. and therefore there is no way of knowing whether labour displacement will be non-existent. while only 10% believed 7+ years was necessary. mild or severe in Indian retail. The study also ascertained that 75% of people felt that foreign retailers would make a long term commitment to investment in India and would not simply make minimal investment then 'repatriate profits'. for which the complete list is detailed in Chapter 4 & Appendix II. Survey respondents suggested the following ways in which labour displacement might be dealt with:· · · · Provide skills and comprehensive training to 'unorganised' retailers to allow them to evolve/innovate and remain employed in retail trade. This research has shown that an overwhelming majority (91%) believe that FDI in retail will bring benefits in the form of further investment. and perhaps prevent it from happening all together. skills and consumer choice. whilst 16% thought a phased system would not allow domestic retailers to adjust anyway. Compensation.Chapter 7 -Conclusion 7. Over 20 recommendations for reform to support domestic retailers were gathered from the data analysis of the survey.3 Market sentiment and exploration of domestic retailers' thoughts. We re-iterate that other countries have experienced varying results. rights and benefits should be provided to those displaced. but a well thought out plan and policy & regulatory system will minimize the risks here. Nearly 50% of people believe a 1-4 year phasing in period would allow domestic players to successfully adjust to foreign players. This compares to 12% who believe labour displacement is inevitable and 11% who believe there are no solutions to this problem. One would imply that there is likely to be some displacement. India's domestic market is clearly divided on whether there is even an issue of displacement. Government should provide and control equal employment opportunities both in the ‘organised' sector and in back-end services. 70 .

4.4.4 Recommendation 4 Labour Laws need to be reviewed to be more in line with the requirements of retail sector employment. 7.3 Recommendation 3 Begin recording detailed statistical data of the sector.2 Recommendation 2 We recommend that the retail sector is granted 'industry status' as soon as possible so that a legislative framework can be put in place for the control and management of the sector and its day to day operation. 7. as these are only serving to provide a loop-hole for back-door entry by foreign retailers and are not promoting transparency within the policy.4 Recommendations Based on the research carried out. and domestic organised and unorganised so that the impact of FDI when introduced can be closely monitored and policy finetuned accordingly. both foreign.1Recommendation 1 The government should revoke the recent Press Notes that relate to permitting cascading subcompanies. we propose several recommendations for areas that have been highlighted as concerning for FDI in retail.5 Recommendation 5 Investment should be made by the government to improve the efficiency of the manufacturing sector so that this sector can grow and provide more employment opportunities going forward. These recommendations are by no means an exhaustive list but should serve as a framework for consideration of the various ways forward with policy change:- 7.4. 7.6 Recommendation 6 City Planning needs to be addressed so that development is in such a way that it protects the traditional trader areas and does not clutter the already densely populated city centers. 7.7. 71 .

firstly to reduce the effects of any potential labour displacement.12 Recommendation 12 Implement a 'phased introduction' of FDI to the retail sector. Recommendation 10 Rules on re-patriation of foreign profits should be revised. so as to provide gradual adjustment for the domestic players and to allow fine-tuning and adjustment of policy if issues arise. so as to protect the traditional craftsmen and unorganised traders.4.4 Recommendations 7. 7. and secondly to encourage foreign retailers to provide training.4. to discourage (and restrict) 100% of profits from leaving India.4.4. 72 . Conditions imposed on requiring foreign retailers to invest a minimum amount in infrastructure and supply chain capabilities would be beneficial. 7.9 Recommendation 9 The government should impose local employment quotas on foreign retailers. and to provide equal access to space for both foreign and domestic players. say over 2-4 years.8 Recommendation 8 Certain sensitive products should be restricted from foreign retailing. 7.11 Recommendation 11 Consider providing Tax relief and/or subsidy by way of low rate loans to domestic retailers to provide support. skills and development to local people who without it would not be able to transfer to the 'organised' retail sector or back-end services. 7. 7.7 Recommendation 7 Real Estate Regulations need to be considered for reform so as to facilitate access to land and property for use by the retail sector. The products to be restricted needs to be given thought and researched before any decisions are made.

Special Economic Zones need to be assessed with further research. so as to prevent the creation of a 'China Pipeline'. This should assist the domestic players in expanding and will help to streamline the efficiency of the sector.4. to review their advantages and disadvantages to both India as a country.4.14 Recommendation 14 Conditions of minimum sourcing from domestic agricultural and manufacturing sectors should be imposed. 7. reducing the number of licences required by businesses to open a store.4. 73 . rather than the current Maximum Retail Price (MRP). and to the foreign players. for example.15 Recommendation 15 Bureaucracy and formalities should be reduced by updating related legislation.16 Recommendation 16 Geographical restrictions for foreign investors need to be considered so as to reduce the impact. or prevent the fast expansion of retailers in to rural areas. 7. need to be updated and brought in to line with the needs of the future Indian retail sector. 7. 7.4.13 Recommendation 13 The government should reform price control policies to ensure that foreign retailers cannot sell below a minimum price.7.4 Recommendations 7.17 Recommendation 17 Other related regulations such as copyright law.4.

74 .7. it would be interesting to investigate how this might impact foreign investment in the retail sector in India. Special Economic Zones which have not been possible to cover in any detail within this study could provide an interesting area of research so as to establish the advantages and disadvantages of operating under a SEZ system. for example. With the Doha Rounds to conclude in 2010. The GATS Agreements and World Trade Organisation Doha Round would also be another interesting avenue of research.5 Further research There are many areas that have been highlighted as requiring further research during this study. Each individual argument for and against almost requires an entire research project to itself so as to delve further into the complexities of each specific scenario. Consumerism is an area that is worthy of further research so as to ascertain whether there is any correlation between changes in consumer dynamics and the emergence of organized retail in specific 'verticals'.

Both D & E (tendency to be more concerned with consumers/society and the economy) G. Both A & B (tendency to be more concerned with improvements in retail industry) D. 9 & 10) Question 3 A. Provide Platform for domestic retailer marketing L. Invest in and provide for equal access to an organised wholesale & supply chain infrastructure B. Improve infrastructure. (Against FDI being opened up at all) X. innovation and best practises B. technology. No response / Uninterpretable response Question 7 A. believe its "non-sense not to open FDI in retail") I. Believe in “free market efficiency” and less protectionism (respondents gave a sense of political disagreement and also had a tendency to agree with answer H i. Implement procedures for data collection/monitoring of global/Indian retail & FDI data 75 . FDI shouldn't be opened up 'yet'. Increase employment and economic growth F. but should be in the future. Real Estate Regulations (including allocation of land / city planning legal framework) H. FDI will not be of benefit. exports. Remove intermediary middlemen in the supply chain E.reduce admin and formalities (inc. Provide subsidy to domestic retailers (including low-rate loans/bank finance) K. Bureaucracy . Copyright/trademark regulations G. 7. Price control regulations F. Provide 'knowledge' and skills to existing domestic retailers to innovate and modernise D. including Agricultural/Manufacturing H. Increase investment in the 'organised' retail sector (believe required for growth of domestic organised retail. Protect Certain Products/formats from FDI and consider keeping 'sector caps' C. Pro-FDI) J. (believes the domestic market is not ready/developed enough yet) K. Improve skills. Restrict FDI profits allowed to leave India J.Appendix I Code Key for Open-ended Questions (3.e. supply chain and logistics C. legal. Commented on all of the above (A-G) (very pro-FDI. business formation) I. Improved competition & consumer benefits E.

76 . Believed the statement to be 'false' and disagreed. Require a percentage of Foreigner Investment to go in to Indian development projects S. Compulsory local sourcing for FDI (including policy to protect manufacturers/farmers) N. No Response / Uninterpretable / Misinterpreted the question Y. No reforms necessary. and upgrade labour laws to support this. No .g. Friendlier Labour Laws and Goods & Services Tax (GST) introduction across India T. Implement Educational Retail Training initiatives R. Provide retail business with lawful 'industry status' U. for example.Appendix I Question 7 M. Believed the statement to be 'true' and agreed. B. Free Market / Healthy Competition preferred Question 9 A. Foreign investors should be asked to invest in retail related facilities first.there are no solutions to the labour displacement that FDI will cause. Regulation/Checking to ensure international standards within retail sector O. or were unable to provide solutions to prevent displacement happening X. manufacturing and farming industries. Ensure a 'phased' introduction of FDI X. Government should provide and control equal employment opportunities in organised and backend services. No Response / Uninterpretable / Misinterpreted the question Question 10 A. Tax relief / incentives for domestic retailers Q. Offered no counter argument. Any reforms necessary to protect the domestic retailers V.: Special Economic Zones) P. Were able to counter the argument with solutions to prevent displacement from happening B. Restrictions geographically on FDI (e. Includes requiring a fixed quota of employment of Indians by the foreign investor C. to offer further employment in. Systematic study of each sector required to address reforms required W.

Don't believe labour displacement will happen (or will be very limited). E. Includes reform of remuneration policy F.Appendix I Question 10 D. Provide skills training to allow existing retailers to upgrade/innovate so as to continue employment in the retail sector X. No . Provide compensation / rights / benefits to those who are displaced. No response / Uninterpretable response / Misinterpreted the question 77 .

An exclusion of specific products for the domestic retailer f. do you think any of the following conditions should be imposed on foreign retailers? a. No 2. No 3. Only allow branded products I. Yes b. If FDI policy is to open up in the future. Only allow FDI in specific cities/areas d. Malls) h. Do you think that government reforms need to be made to support domestic retailers so that they can face the foreign investment competition? a. A minimum investment amount requirement e. Are you happy with the current FDI Retail policy as it is? a. No 5. Yes b. Only allow certain retail formats (e. Yes b. Equity limits c. None b. Following Question 6. what reforms do you think should / should not be made? 78 . No 7. 4. Other restrictions…? (please specify) 6. Yes b. Certain products must be manufactured/sourced in India by the foreign investor g. Do you think the Indian Government should open up Foreign Direct Investment (FDI) restrictions in the Retail Sector? a.g.Appendix II Survey Questions 1. Please give reasons for your answer to Question 2. Are you aware of the current FDI in Retail Regulation & Policy? a.

7-10 h. a. 0 b. technical skills and consumer choice? a. 2 d. and therefore will make little investment. 4 f. Do you believe that lifting restrictions on FDI in retailing will allow more investment. but reap the profits all the same. No 9. non-compulsory fields were as follows:Name Title 79 . It is argued by some who are against FDI. that foreign retailers will not 'own a stake' in India. 10+ Preliminary. 1 c. 5-6 g. Over how many years do you think FDI policy could be phased in to allow domestic industries/markets to adjust successfully? Please select '0' if you don't think phasing in would allow successful adjustment for domestic players. Yes b. Can you think of any solutions to the potential problems of labour displacement in the unorganised retail sector if FDI regulations are opened up? 11.Appendix II Appendix Survey Questions 8. 3 e. How can you counter this argument? 10.

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